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Starbucks
SBUX
By: Jenna Chwal
GB 6030 276
Fall 2014
Starbucks was a single small store that opened in 1971 and is now a 21st-centruy-gourmet
coffee giant. They have led a coffee revolution in the United States and beyond. Starbucks was
founded in Seattle, Washington. The city had been noted for its coffee before World War II, but
had a serious decline in quality. In the late 1960’s Gordon Bowker made a pilgrimage to the city
to buy his first coffee beans. He wanted something dark, and delicious that reminded him of
something he came across in Italy. With his two college friends, Jerry Bladwin, and Zev Siegl,
the three banded together to build their first store, by hand, in Seattle’s Pike Place Market costing
them $1,350 a piece and a borrowed $5,000. Learning by coffee legend, Alfred Peet, who ran
Peet’s Coffee, they learned the legend among coffee of drinkers since 1966. Starbucks bought its
coffee from Peet’s for the first nine months and gave away cups of coffee to hook customers in.
The plan not only worked but helped them flourish. By 1972, the three founders had opened a
second store in the University Village and invested in a Probat roaster (Starbucks Corporation).
Within the first decade, Starbucks had opened stores in Bellevue, Capitol Hill, and
University Way. By 1982, they had sold a retail business of five stores, a small roasting facility,
and a wholesale business that sold coffee primarily to local restaurants. In the Mid 1980’s
Starbucks bough Peet’s Coffee, which had then become a five-store operation. They started to
open coffee bars. In 1986 Starbucks had its first coffee bar in the tallest building in Chicago. In
1988 a mail order catalog was introduced. In 1992, the company went public. In 1993, the first
east coast store opened in Washington D.C. In 1995, Frappuccinos were introduced and a year
later they expanded over seas with units in Japan, Hawaii, and Singapore. In 2005, the 10,000th
Starbucks had been opened. The company had more then 115,000 employees, with sales over
6.37 billion dollars. Now with 182,000 employees across 19,767 company operated and licensed
stores in 62 countries, and a sales revenue of $14.89 billion in September 2013, Starbucks is a
great success (Starbucks Corporation).
Starbucks Corporation is the leading roaster, retailer, and marketer of specialty coffee in
the world. Starbucks has more then 7,300 coffee shops and kiosks in the United States, and
nearly 3,000 shops and kiosks in thirty-four other countries. In addition to their coffees and
coffee drinks, the shops also include Tazo teas, pastries, and other food items, espresso machines,
coffee brewers, and other coffee and tea related items, and music and CDs. Starbucks also sells
many of the products via mail order and online at Starbucks.com. In addition to the coffee shops
and kiosks, Starbucks wholesales its items to restaurants, businesses, education, and healthcare
institutions, hotels, and airlines (Starbucks Corporation, 2013).
With a partnership with Pepsi-Cola Company, Starbucks bottles Frappuccino beverages
and the Starbucks DoubleShot espresso drink and sells them through supermarkets, and
convenience and drugstores. With another partnership with Kraft Foods, Inc., the company sells
Starbucks whole bean and ground coffee into grocery, warehouse club, and mass merchandise
stores. Another joint venture with Dreyers Grand Ice Cream, Inc., develops super premium
coffee ice creams and distributes them to U.S. supermarkets (Starbucks Corporation).
Starbucks primarily operates and competes in the retail coffee and snacks store industry.
This industry experienced a major slowdown in 2009 due to the economic crisis and changing
consumer tastes. The industry revenue in the US declined 6.6% to $25.9 billion. This growth
would be mainly driven by an improving economy, increase in consumer confidence and
expanding menu offerings within the industry. Starbucks is dominating the industry with a
market share of 36.7%. Starbucks has more competitors now such as, Dunkin Brands with 24.6%
and other competitors like McDonalds, Costa Coffee, Tim Horton’s etc. taking up 38.7%
combined (Geereddy).
One of the key strategy that Starbucks followed since the beginning is product
differentiation. Starbucks offers differentiators such as premium product mix, locations, coffee
beverages reputation and supreme customer service that translated to building a premium valued
brand which is costly to imitate for competitors. Starbucks has also followed a strong strategy of
strategic alliances and making smart acquisitions. Starbucks has made some key acquisitions
such as Teavana (tea products), Bay Breads (premium bread products), Evolution Fresh (fresh
juice products) and other special products to keep their products different and unique from
competitors. Starbucks acquisition strategy has been horizontal with product and market
extensions acquisitions. Another crucial strategy for Starbuck’s growth has been its international
