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Emily Thomas
Professor Gervais
Strategy
Starbucks Case
April 2, 2012
Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth
Starbucks has been the world’s premier roaster and retailer of coffee since its founding in 1987.
Today they operate stores in over 50 countries. They have 8,812 company-owned stores and
7,583 licensed stores. Sales accumulate on average to about $10 billion dollars.
Starbucks along with the rest of the world was hit hard with the worldwide recession beginning
in 2008. They were forced to change the way in which they operated. Starbucks is a rapidly
expanding company and it is imperative through the leadership of Howard Schultz that they
continue to evolve.
1. Summarize the overall strategy of Starbucks Management in its effort to create and
develop a new concept and a rapidly expanding company.
During the 1990’s it was evident that Starbucks needed to adapt and make changes in order
to benefit their rapidly expanding company. The Chief Executive of Starbucks, Howard Schultz,
decided that the way they would expand the company was by increasing distribution channels as
well as acquiring more market segments. They increased their distribution channels by making
products more accessible. By acquiring additional segments they aimed to create new products
that cater to a larger group of consumers. They chose to focus on these changes in order to create
sustained growth in the long run.
Starbucks started working hard to expand their company using the new distributions
channels and expanding to new market segments. They started with new distribution channels by
selling their products to existing Universities, hotels, country clubs, hospitals, airlines, and
restaurants. They also decided to work with large distributors who resided in the U.S. such as
Sysco and US Foodservice. Both distributors began delivering Starbucks products to their clients
soon after the partnership with Starbucks was formed. In order to break into new market
segments Starbucks created new partnerships. Firstly, in 2007 they partnered with PepsiCo in
order to create the International Coffee Partnership. The International Coffee Partnership sold
Starbuck’s ready-to-drink beverages to countries around the world. In 2008 Starbucks also joined
with Suntory and Arla Foods in 2010 to sell ready ready-to-drink beverages in Japan and the
United Kingdom.
Starbucks decided they would also expand their new market segments into ice cream. In
order to do so they created a partnership with Dreyer’s Grand Ice Cream in 1995. This
partnership dwindled and in 2008 Starbuck’s formed a new partnership with Unilever the largest
ice cream manufacturer in the nation. This partnership was far more attractive due to Unilever’s
offer of exclusive marketing, manufacturing and distribution of the new ice cream with the
Starbucks name.
Starbucks acquired Tazo Tea in 1999 to continue expanding their market segments. This
allowed Starbucks to create ready-to-drink Tazo beverages within their existing partnership with
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PepsiCo. Kraft Foods began to distribute Starbucks coffee products (beans and grounds) to mass
retailers and grocery stores within the United States. Kraft Foods was responsible for the
distribution, advertising, promotions, and markets of the coffee products giving Starbucks a set
percentage of their net sales. They were also able to include Tazo Tea in this distribution by Kraft
Foods.
Another acquisition Starbucks had in 2003 was that of Seattle’s Best Coffee. Seattle’s Best
Coffee kept its name on all its products and stores. Due to their relationship with PepsiCo they
were once again able to create ready-to-drink beverages with the Seattle’s Best Coffee name, and
through their Kraft Foods partnership Seattle’s Best Coffee began being distributed in grocery
stores throughout the U.S.
They continued increasing their brand with the purchase of Ethos Water, and a partnership
with Jim Beam Brands. Jim Beam and Starbucks created a Coffee Liqueur available for sale. In
2009 they also started Starbucks VIA Ready Brew. This allowed for on the go consumers to
place a small packet of coffee in hot or cold water and mix it together creating a coffee beverage.
Starbucks also partnered with iTunes to make their music selections available for sale. Overall,
Starbucks greatly increased their market segments and increasing distribution channels in various
ways.
Starbuck’s had a specific strategy when it came to opening new locations. They believed
more in licensing locations as opposed to franchising new stores because of the lack of control
that comes with franchising. Starbucks also wanted to enter more international markets realizing
that these new markets could increase revenues drastically. All of these things helped Starbucks
as a rapidly expanding company.
2. Which one of the five generic competitive strategies discussed on Chapter 5 most
closely approximates the competitive approach that Starbucks is employing?
Although Starbucks follows many of the five generic competitive strategies the strategy they
follow most closely is the broad differentiation approach. Starbucks has put an emphasis on
product differentiation in order to keep up with their ever-expanding company base. They have
been extremely successful in their differentiation compared to their competitors. Starbucks offers
such a multitude of products, which allows them to appeal to a variety of consumers. There are
seven differentiating features of the generic competitive strategies. The following are ways in
which the differentiating features prove that Starbucks follows a broad differentiation approach.
i. Strategic Target- Starbucks has a broad market and they are able to meet the needs of a
multitude of consumers. They are able to reach the more on-the-go customers through
their VIA Ready Brew, health conscious customers with their Vivanno smoothies, at
home consumer through their grocery store sales, as well as international consumers
through their overseas expansion.
ii. Competitive Strategy- Starbucks has always emphasized that the products Starbucks
sells are important but just as important is the atmosphere of each individual Starbucks
location. Each location is designed specifically to fit its geographical location. These
specialized stores allow for even further differentiation from competitors whose stores
are usually the same no matter the location with slight variations.
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iii. Product Line- Starbucks has an immense number of products in which they offer
compared to its competitors. They offer everything from the specialty coffees sold in
stores to ice cream, t-shirts and other merchandise, liqueur, food products, etc. Starbucks
product line is ever expanding and evolving.
iv. Product Emphasis- Usually when a company offers an immense number of products the
quality of each individual product dwindles. However, Starbucks’ products are
guaranteed high quality even with such a broad variety of products available. From the
beginning of Starbuck’s their claim to fame and emphasis has been on the high quality of
their goods especially coffee. This is one of their main differentiating principles to make
sure they always have the highest quality products available to the consumer.
v. Marketing Emphasis- Another differentiating factor of Starbucks is the atmospheres of
each individual location. They make sure that customers are comfortable and happy with
the service. They train their staff intensely in order to provide the best customer service
possible. This helps market to a variety of consumers who know the high quality of both
the products and service available at Starbucks.
vi. Keys to Maintaining Strategies- Starbucks is constantly innovating their products and
store locations. They have gained many new partnerships and entered many new market
segments. They have created partnerships with companies spanning from iTunes to food
distributors such as Kraft Foods. Starbucks is continuously becoming more innovative
