CASE: Starbucks- Going Global Fast

Summery

Starbucks is one of the largest chains of coffee shops in the world. They started their business
in the early 80s as a tiny chain of Seattle coffee shops, grew rapidly in the 90s and now own
5,689 coffee shops in 28 countries. This chain of coffee shops is very well managed by a well
seasoned management team popularly known as H2O, because of Howard Schultz (Chairman
and Chief Global Strategist), Howard Behar ( Head of North American Operations), and
Orion Smith (CEO).

Although, the company has expanded enormously, since it went public in 1991 but has also
encountered a number of problems. The problem it faced had it mounted in home and
abroad. The company had its success through the baby boomers in the 90s, but now the
Generation X is not liking the environment of the shop and the young generation feel out of
place in the coffee shop, above all the price of coffee seems to be little expensive to them.

The starbucks did not have much competition like Mc Donald’s and the likes in the initial
days but now they have competitors such as Tully’s coffee shop. They also had problems of
employees’ discontentment. The expensive and aggressive marketing strategy has given
starbucks market dominancy. They earn $181.2 million in the year 2000, sales were still
growing but it started growing in a decreasing rate, because their aggressive strategy and
attitude towards competitors not only they grew rivalry with local business people but they
lost customer. It was difficult for them to maintain their growth of 20% only on domestic
market. So, they opted for going overseas. They maintain some aggressive attitude in other
countries also. The largest overseas market of starbucks was in Japan when they had 368
shops, UK was their second largest overseas market, and by the end of 2001 they started
operation in the Middle East. They want to have 10,000 outlets abroad by next three years. In
the domestic market they repositioned themselves adding internet service, fast food etc. to
maintain their profit. In Japan their profit started declining during 2001.

The starbucks need readjust their strategies and reposition them to rise from the fall.

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 Answer of the Question

Question No.1. Identify the controllable and uncontrollable elements that starbucks has
encountered in entering global market.

Answer: The controllable and uncontrollable elements that starbucks has encountered in
different markets are described and given in tabular form below:

Name of the country Elements

Controllable Uncontrollable
(Foreign Environment)
i. Competition among
Japan rival shops in Japan.
ii. Economic depression.

i. Political and legal

France bindings. (France’s arcane
regulations and generous
labor benefits).
Price (Italian coffee bars
prosper by serving food as
well as coffee, an area where
starbucks still struggles. Also
Italy Italian coffee is cheaper than
US java say, Italian purists,
much better. Americans pay
about &1.5 for an espresso,
on the other hand northern
Italy the price is 67 cents, in
the south just 55 cents.

Vienna Culture (young are always

enthusiastic about new and
they embrace the new. So,
starbucks will get positive
advantages in expanding their
business in Vienna compared
to existing coffee shops
there).

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Question No.2. What are the major sources of risk facing the company and
discuss the potential solutions?

Answer: Basically Starbucks faced three major risks at domestic region. On of which was
saturated market condition (USA). Fifteen years ago they initially started with 17 coffee
shops in Seattle and 5,689 outlets in 28 countries. Now, amazingly 4,247 stores scattered
across the United State and Canada. In Seattle there is outlet for every 9,400 people. And the
company considers that the upper limit of coffee shop saturation.
Another risk is loosing customers, because fewer options are available for the customer.
And third risk is less but not the least the young generation (Generation X) feels comfortable.
Global expansion poses huge risks for Starbucks. For one thing, it makes less money on each
overseas because most of them are operated with local partners.

Potential solutions: Basing on the risks faced by Starbucks, we can suggest the following
solutions.
• One of the risks that they faced in USA-the risks of market saturation can be over
come in focusing on international or global marketing. They may focus on the fact of
reducing employee disruption to increase the quality of service and coffee for which
they are well known.
• As they were facing ominously hostile reception from its future consumer
(Generation X), they should reposition their product according to customers need, so
that they find can the $3 they are paying for a cup of coffee is reasonable. They can
also change their pricing strategy.
• As coffee is the core product of them to serve they should give more focus on
improving the quality of coffee. They may make arrangement for some other items
beside coffee as well.
• As Starbucks is going abroad to expand it business with local partners of that region
there risk of SRC and ethnocentrism. It can be over come through proper adjustment
keeping SRC and ethnocentrism away in decision making.

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Question No.3. Critique Starbucks overall corporate strategy.

Answer: Starbucks are incurring losses for mismatch between their corporate strategies and
the customer’s expectations. Those are described below:

• When Starbucks is blanketing some specific cities for dominance, still eight states
in the United States are with no Starbucks stores. Starbucks free cities are - Butte,
Mont., and N.D.
• They believe that the more the outlet the more the sale. Basing on this strategy they
are increasing their outlets day by day in their domestic region as well as abroad.
Without satisfying the customers need, by increasing the numbers they will not be
able to succeed in their mission.
• Starbucks’s target customers are the Baby boomers or older generation, it has no
differential pricing for the Generation X or younger generation.
• Though Starbucks fully control its business in the USA, but it has franchisee
outside the USA. Depending on the franchisees’ undermines the strength of
Starbucks outside the USA.
• Starbucks is about to become a global company. But its spending does not match
with its status. Starbucks only spends 1% of its revenue as advertisement; whereas
most companies its size spend at least 10% revenue. Low spending on
advertisement hampers Starbucks’s brand building outside the USA.
• By aggressive marketing strategy they have created entry barrier for the competitors
through “predatory real-estate strategy”.
• They have focused on the product concept which myopic attitude in making
corporate strategy.
• Starbucks pay does not come close to match the work load of their employees that
created dissatisfaction among them affecting sterling service and even the coffee
itself.

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 • Schultz should be more cautious to various cultural and ethnic affairs. As a Chair of
Starbucks and having market in Muslim dominated regions , he can not make any
scathing comment against Palestinian.

Question No.4. How might starbucks improve profitability in Japan?

Answer: To improve the profitability in Japan they should reposition their product and
service. The Japanese are less conscious about the price. According to the present cultural
trend in Japan, younger generation is inclined towards spending their time in a constructive
manner. The source from internet says that the Japanese youth have very less time for their
leisure. Besides sipping a cup of coffee in a coffee shop they love to learn English Language.
Even they do not hesitate to spend ¥ 1,500 in an internet café just for sleeping.

• Starbucks and its competitors in Japan are providing the same fare. As a result,
competitors can easily eat up Starbucks’s share. So, Starbuck should either reduce the
price or increase benefits in Japan.
• Starbucks can introduce US style online system in Japan, so that busy Japanese can
provide their order in the internet.
• Starbucks can introduce various cultural campaign or entertainment campaign in
Japan, so that Japanese youth feel attraction to come Starbucks. In times of economic
recession extra activities are necessary to boost up sales.
So, for attracting the Japanese market in addition to coffee, arrangement of internet facility
and other amenities should also be provided.