Introduction
This report was written by three Arnhem Business School students for the purpose of
providing a full analysis of the Starbucks Coffee Corporation.
Although Starbucks is operating internationally, this report is mostly based on the United
States, as this is Starbucks domestic market and until today its main operating market.
First, the internal analysis gives an overview about Starbucks as a company.
Second, the external analysis is used for analyzing the market Starbucks is operating in.
Third, the strategic options possible for Starbucks are analyzed.
Last, an explanation will be given on how Starbucks should implement the best strategic
option available.
Introduction 1
1 Executive Summary 4
INTERNAL ANALYSIS 5
2 The Company and its strategy 5
2.1 History: 6
2.2 Mission Statement 7
2.3 Global Strategy 8
2.3.1 Customer service excellence 8
2.3.2 Product quality 8
2.3.3 Accessibility 8
2.3.4 Innovative Business Strategy 9
2.3.5 Brand recognition 9
3 The Marketing Strategy 10
3.1 Product 10
3.2. Price 11
3.3 Place 11
3.4 Promotion 12
Helping the environment and community is proven to be a powerful marketing tool for
Starbucks. Firstly, Starbucks helps the community and the environment, and at the same
time creates the image of being a socially responsible company that contributes to better
living standards. Customers are aware of the fact that when they buy something from the
company, they also do something good for the community. 12
In addition to that Starbucks uses a non-typical approach to promote its products.
Starbucks products are neither advertised in TV nor radio commercials. Instead, Starbucks
intents to build up a reputation and a strong brand image by using community programs
and relying on word-to-mouth promotion. 12
4 Corporate Culture and Management Style 13
4.1 Executives 13
4.2 Board of directors 13
4.3 Employees 13
5 Financial Analysis 14
5.1 The first steps 15
5.2 The 1987-1992 period (private company) 15
5.3 The expansion (public company) 16
6 Conclusions Internal Analysis: 18
6.1 Strengths 18
6.2 Weaknesses 19
EXTERNAL ANALYSIS 20
7. Market Analysis 20
7.1 Demography 20
7.2 Economy 22
7.3 Technology: 23
7.4 Social and cultural: 24
7.5 Environmental: 25
7.6 Political: 25
8 Target groups 26
8.1 Young adults 26
8.2 Business people 26
8.3 Seniors 27
9 Competitor Analysis 28
9.1 Strategic group map 28
9.2 Caribou Coffee Company, Inc. 29
9.3 Diedrich Coffee, Inc. 29
9.4 Panera Bread Company (PNRA) 29
9.5 Other competitors US market 30
9.6 Competition in Europe and Asia 30
10 Porters 5 forces 31
10.1 Threat of new entrants 31
10.2 Bargaining Power of Customers 32
10.3 Bargaining Power of Suppliers 32
10.4 Threat of Substitute Products or Services 33
10.5 The Intensity of rivalry among competitors 33
11 Conclusion External Analysis 34
11.1 Opportunities 34
11.2 Threats 35
Volatile coffee markets 35
Market/lifestyle fluctuations 35
Fierce Competition 35
12.1 TOWS analysis: 37
12.2 Strategic options 37
13 Bibliography 39
Appendix 3 41
Further explanation Strategic Options: 41
Opportunities combined with Weaknesses: 41
Threats combined with Strengths: 41
Threats combined with Opportunities: 42
1 Executive Summary
Starbucks has become a well-known company for selling the highest quality coffee beans
and best tasting coffee products. It was one of the first companies to realize that the real
money to be made was in beverage retailing, not just coffee beans. Starbucks created a
coffee for the coffee connoisseurs and got to great lengths to acquire only the highest
quality of coffee beans. Store Managers of Starbucks coffees are extensively trained for
one year. Starbucks has the distinction of being the publics educator on Espresso. They
have also recently started to expand to packaged and prepared tea in response to the
growing demand for this product. There are no other national coffee bar competitors in the
same scale as Starbucks.
According to a 2004 report published by The World Bank, the term specialty” coffee
originated in the U.S. to differentiate the offerings of small coffee roasting companies. The
market for these coffees exploded in the U.S., as cafes opened with espresso-based
beverages and companies launched extensive marketing and branding campaigns. This
movement is now spreading back to Europe, where the caf* concept originated. In the
U.S., where coffee imports total at least 25% of overall global volume, the specialty coffee
market accounted for more than $8 billion in sales in 2002.
As the market for specialty coffees remains consistent in the Americas, significant growth
opportunities exist in emerging markets, including Asia, Eastern Europe and the former
Soviet Union countries not historically known as “coffee consumers.” Rapid expansion and
demand for inexpensive, specialty coffees in these markets continues. In northern Europe,
the coffee market remains stagnant,” but southern Europe offers the best growth
opportunities for differentiated coffees. In Japan, a traditional tea-drinking consumer
market, coffee demand is slowly growing. In all cases, access, differentiation, cultural
tastes and cost continue to be challenges facing the global market.
INTERNAL ANALYSIS
2 The Company and its strategy
When taking a look at the Starbucks Coffee Corporation, it is essential to understand
where the company is standing today:
Starbucks has become impressively dominant in the U.S. coffee retail industry. By the end
of fiscal year 2005, Starbucks had more than 7,300 U.S. locations and a total of 10,500
locations globally. The firm boasts annual domestic sales in excess of $5 billion.
According to figures published by the SCAA, the U.S. coffee cafe industry generated a
total of $7.7 billion in sales last year out of 13,900 locations. That gives Starbucks a
whopping 65% market share in terms of revenues and 53% share in terms of locations .
In the graph shown above one can see the division of Starbucks stores worldwide.
Although 72% of the Starbucks stores are still in their domestic market, one can see that
Starbucks focus is international. Especially the Asian-Pacific Market is highly targeted by
Starbucks. As Starbucks strives to maintain 20% annual revenue growth over the next
three to five years, half of the 30,000 new stores it plans will be overseas.
2.1 History:
Starbucks Coffee Company was founded by three academics in 1971, opening its first
location in Seattles Pike Place Market. It was named after the first mate in Herman
Melvilles Moby Dick, “Captain Starbucks”. The 3 academics picked a two-tailed siren for
the logo, a creature of strength and power, common in medieval adventure tales.
The Starbucks pioneers were enthusiastic but not very focused. This lack of focus was
made up for when Howard Schultz joined the company in 1982.
In August 1987, Mr. Schultz and his investors bought the whole of Starbucks for $4
million. The Company began with eleven Seattle stores and fewer than one hundred
employees.
In 1994, Starbucks acquired all of the capital stock of The Coffee Connection, a
roaster/retailer of specialty coffee. Starbucks New Venture was created in fiscal 1994 to
develop ready-to-drink coffee-based beverages in partnership with the Pepsi-Cola
Company.
In October 1995, SBI was created to pursue development of Starbucks stores outside of
North America, and Starbucks Holding Company was created to enter into a joint venture
with Dreyers Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee
ice creams.
Today Starbucks and its subsidiaries (“Starbucks” or the “Company”) include Starbucks
Corporation and its wholly owned subsidiaries: The Coffee Connection, Inc. (“The Coffee
Connection”), Starbucks New Venture Company (“Starbucks New Venture”), Starbucks
Coffee International, Inc. (“SBI”), and Starbucks Holding Company.
2.2 Mission Statement
The Starbucks Mission Statement states the following:
“Establish Starbucks as the premier purveyor of the finest coffee in the world while
maintaining our uncompromising principles while we grow.”
Furthermore six guidelines were set up to help the company measure the appropriateness
of their decisions:
Provide a great work environment and treat each other with respect and dignity.
Embrace diversity as an essential component in the way we do business.
Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of
our coffee.
Develop enthusiastically satisfied customers all of the time.
Contribute positively to our communities and our environment.
Recognize that profitability is essential to our future success.
As Starbucks feels deeply committed to its social and environmental responsibilities, an
environmental Mission Statement was added in 1997, which states the following:
“Starbucks is committed to a role of environmental leadership in all facets of our
business.”
Seven guidelines were set up to help the company fulfill the mission of this statement:
Understanding of environmental issues and sharing information with our partners.
Developing innovative and flexible solutions to bring about change.
Striving to buy, sell and use environmentally friendly products.
Recognizing that fiscal responsibility is essential to our environmental future.
Instilling environmental responsibility as a corporate value.
Measuring and monitoring our progress for each project.
Encouraging all partners to share in our mission.
2.3 Global Strategy
The global strategy of Starbucks is to provide costumers with more than a cup of coffee:
“You get more than the finest when you visit a Starbucks, you get great people, first rate
music and a comfortable and upbeat meeting place” , says Mr. Howard Schultz.
This global strategy can be undermined by the key success factors of Starbucks:
2.3.1 Customer service excellence
One of the most important key success factors when looking at Starbucks is their customer
service excellence. Many of Starbucks customers choose to buy their coffee from them,
because the employees are very well trained, friendly and create a nice atmosphere in
Starbucks stores. Therefore customers feel welcome when entering a Starbucks. Next to
that, every single customer is treated in way that they feel special, which makes the
customers feel good and leads to customer service excellence
2.3.2 Product quality
Next to their customer service excellence, one of the main key success factors of Starbucks
is their product quality. Customers buy Starbucks coffee because they can be sure to
