Statement of the Problem
Starbucks Coffee Company is the leading retailer, roaster and brand of specialty
coffee in the world. The goal of Starbucks is to establish the company as the premier
purveyor of the finest coffee in the world while maintaining the organizations
uncompromising principles. In addition, Starbucks wants to develop its brand beyond
being the preferred outlet from which to purchase coffee to becoming the preferred
consumer brand.
The coffee company has capitalized on the new found popularity of specialty coffee with
its addition of coffee bars globally. Starbucks Common Stock increased from $3.31 per
share in 1994 to $10.00 per share by the mid 1990s. Despite the success of Starbucks, the
company is faced with many challenges to continue the growth of its business. The key
strategic problem that Starbucks faces is maintaining the quality of their brand while
leveraging the brand image and going into different sales and distribution channels.
SWOT Analysis
Strengths
1. Is the leader in specialty coffee industry (p7).
2. Its commitment to quality (p7), values (p8), & principles (8).
3. Its policy toward its employees (pgs 8, 17).
4. Its openness to innovation
a. Pepsi-Coal Frappuccino.
b. Distinct Roasting equipment and process. (longer shelf life; p10)
c. AOL Cafe.
5. Worldwide resources for coffee beans.
a. 50% from Latin America.
b. 35% from Pacific Rim.
c. 15% from E. Africa.
d. SB trains exporters.
6. Supply Chain Operation (SCO)
7. Page 11:
a. Its coffee.
b. Employees.
c. Merchandising.
d. Ownership philosophy.
e. Real estate approach. (Location, building, & cluster strategies)
f. Image.
8. Extensive training for Starbucks “baristas” (employees).
9. Mall kiosk program.
10. Its Brand image.
11. Key specialty sales partners (p14).
12. Diverse distribution channels. Such as:
a. Grocery chains.
b. Dreyers.
c. Pespi-Cola.
d. Kiosks.
e. Airlines.
13. “Encore” mail order program (p16).
14. The vision and leadership of Howard Schultz (pgs 16 17).
15. Its Six Guiding Principles.
Weaknesses
1. Rapid growth is taxing SCOs (p11; also see Strengths #7)
2. The challenge of finding good employees (p12; also see Strengths #8)
3. Consistently merchandising its promotions nationally, with stores dealing with
individual suppliers.
4. Lacks capital to expand rapidly (p14). Dependent upon equity & debt financing (p20).
5. Effectively leveraging its brand-name and size (p20).
Opportunities
1. Reinforcing its brand-image (p8).
2. Global expansion.
a. Higher coffee consumption in foreign markets than in the U.S.
b. Already has contact with foreign exporters.
3. Marketing in higher echelon restaurants and day-part chains (p16).
4. “Concretely defining its brand-image” (p20).
Threats
1. Adequate number of “A” sites in “A” markets nationally (p13).
2. Individual and small chain competitors overshadowing Starbucks brand in local
markets.
Issue Analysis
Starbucks lead in the specialty coffee industry exemplifies the result of deftly executing a
well-planned business strategy. Moreover, Starbucks is well positioned for what is
expected to be a continuing rise in the popularity of specialty coffee products. The
question before Starbucks leadership, however, is what avenues will lead to Starbucks goal
of remaining true to its core, the highest quality coffee products while providing a “total
coffee experience” for its customers?
A review of the estimated growth in retail sales of coffee over the next four years indicates
that while sales of non-specialty coffee products are expected to decline, sales of ground
specialty coffee products and whole bean coffee should rise. Further, sales of
ready-to-drink products are projected to rise almost 50%. The focus leading Starbucks
production of specialty coffee products and reinforcing its partnership with Pepsi-Cola to
market the Frappucino coffee drink products, indicates an astute alignment with the trend.
As leadership at Starbucks looks to the future, they recognize the opportunities that lie in a
global marketing strategy, as well as the challenges they face developing distribution
channels to accommodate global expansion. Additionally, as strong as the Starbucks brand
has become nationally, the company is challenged to hedge against the smaller specialty
coffee chains and even the individual local coffee outlets.
The fact that coffee consumption in foreign markets far surpasses that of the United States
provides adequate justification for taking Starbucks to the international market. Its rapid
growth over the past few years, while notable, has not generated capital sufficient to
finance a broad entrance into the international market.
Starbucks entry into the Asian-Pacific Rim market has served as a learning experience for
venturing beyond the national boarders. Whereas, Starbucks has built a strong Supply
Chain Organization (SCO) to serve its national expansion, the need to further develop its
SCO has become obvious. Fortunately, the relationships Starbucks has developed with
exporters in the major coffee producing regions of the world may serve them well to
develop a global SCO for expediting shipments of Starbucks products anywhere in the
world.
While the international market presents a great opportunity for expansion, much
opportunity exists nationally for Starbucks. Although Starbucks has built its brand on the
strength of its national retail stores, through a diversity of other business opportunities it
has enhanced its brand-image throughout the U.S. Starbucks has demonstrated flexibility
in its innovation and partnering to broaden its customer base with new products. Starbucks,
struggle with brand-image may be the result of this diversity. It is no longer only a
specialty coffee store with a special ambiance; it is an ice cream flavor, a cold coffee drink,
and a mail order business. It is a whole bean and ground coffee product on the supermarket
shelf, a mail order business, a coffee service for airline companies, and an assortment of
specialty products such as mugs and coffee makers. Can Starbucks link these various
distribution channels to make its brand-image even stronger?
A factor in the Starbucks strategy that may be challenged is the belief that expansion of its
sales in supermarkets will “pull customers out of lower priced [coffee] categories.” There
