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Starbucks at a Glance

Starbucks started in 1971 at Seattle by Jerry


Baldwine, Zev Seigle and Gorden Bawker .
Basicaly a retail chain of coffee, tea and spices.
 four stores in Seattle and profitable since its’
opening
Zev Seigle left the company in 1980 to pursue
other interests.
Mainly USP was the quality of Coffee offered to
the customers.
Howard Schultz, vice president and general
manager of U.S operations for a swedish maker of
Stylish chicken equipment and coffeemakers met
with the partners of starbucks in 1981 and after
understanding the company wished to join
starbucks.
The Specialty Coffee Industry

- In 1994, Coffee was the second most traded commodity after


Oil

- There are two main categories of Coffee, Basic and Specialty

- In 1994, the Specialty Coffee Industry was growing at 15%


p.a. at the expense of the Basic Coffee Industry
Specialty Coffee Sales
as a Percentage of Total Coffee Sales

60
50

40
% of Sales
30

20

10

0
1983 1988 1993 1998
Coffee Drinking Trends

The Conspicuous Consumption of Coffee:


- In 1996, per capita consumption of coffee was only about 1.7
cups per day per person

- Consumption of specialty coffee had gone up during


the same period, because of the following reasons

-- Americans substituted specialty coffee for alcohol

-- Coffee bars became a great place to meet people

-- Coffee was an affordable luxury people liked to spend


on

-- Consumers were becoming more knowledgeable


about coffee
Starbucks’ Business

Starbucks has a very aggressive growth strategy,


and has expanded its operations as follows:

- Retail Stores

- Specialty Sales

UAL PriceCostco
Nordstrom Red Hook Breweries
Barnes & Nobles Dreyer’s Ice Cream
Pepsi Co. (Frappuccino, ARAMARK
etc.)

- Merchandising

- Mail Order
Schultz and Starbucks
Schultz mainly focused on the expantion of
starbucks outside seattle.
He joined strbucks in the four stores in seattle
working behind the counters , tasting different
kinds of coffees, talking with the customers ,
getting to store personel, and learning the
retail aspects of the coffee business.
Become CEO of the company and turn around
the entire scenario of doing business of
starbucks.
Mainly focused in expansion plans and
Current Locations
Licensed stores:
Store s ope n a s of Oct. 3, 2 004
Asi a Pa ci fi c Euro pe / Am eri ca s Company-operated stores:
Mi ddle East/Afri ca
N e t store s Store s ope n
Ja pa n 534 Ge rm an y 35 Uni te d Sta te s 1839
o pe ne d a s of Oct. 3 ,
C h in a 152 Sa udi Ara bi a 32 C a na da 66 duri ng fi sca l 2004
T ai wa n 136 UA E 31 Ha wa i i 45 ye a r 2004
South 102 Spa i n 27 Me xi co 32 Uni te d State s 514 4 293
Kore a
Phi li ppi ne s 70 Kuwa i t 27 C hi le 9 I n te rn a ti on a l:
Ma l a ys i a 52 Gree ce 25 Pue rto Ri co 6
Ne w 36 Swi tzerla nd 18 Pe ru 3 Uni te d Ki ng dom 49 422
Ze a la n d C a na da 56 372
I n don e si a 24 T urke y 15 T h ai land 11 49
Le ba non 10 A u s tr a l i a 4 44
A u s tr i a 8 Si nga pore - 35
Qa ta r 6 T ota l 120 922
Ba hra i n 5 I n te rn a ti on a l
Fra n ce 4 T ota l C om pa ny- 634 5 215
Om a n 3 o pe ra te d
Cyprus 2
T ota l 1 106 248 2000

- More than 2400 stores in 33 countries outside the US


- More than 1500 stores in 31 markets outside North America
Que-1 what are the key elements of
starbucks strategy as of 2004? Does the
company have a clear strategic intense
according to chapter 2.
Key elements………….
Expansion plans to open 1300 new outlets
worldwide .
To achieve comparable sales growth of 3 to
7%.
Revenue expected to grow by 20% annually.
Net earning by 20-25 % annually.
Strategic questions been considered
 What could starbucks do to make its store more
rewarded welcomed and surprised customers.
 What new products and new experiences could
starbucks provide that would uniquely belong to be
aasociated with SB?
 How to reach those customers who don’t drink
coffee.
 What are the new strategic paths should starbuck
persue to achieve its objectives of becming the most
recognized brand in the world.
Yes the company has a clearly defined
strategy according to chapter 2. the
justifications can as under
As per the vision statement of starbucks
company is going to open 1300 new outlets
worldwide
To make the starbuck one of the leading
world’s preeminent global brands and to
sustain economic growth the company have to
be innovatiove and compititive and take risk.
Que-2 what grade would you give howard schultz for the job he
has done as CEO of starbucks? Be prepared to support your
answer based on how well he has performed the five tasks of
strategic mgt.( discussed in chap.2)
 I WILL GIVE ( B+) GRADE
TO HOWARD SCHULTZ FOR THE
JOB HE HAS DONE AS CEO OF STAR BUCK .
WHAT IS STRATEGY ?
MANAGEMENT’S GAME PLAN FOR GROWING
THE BUSINESS STAKING OUT A MARKET
POSITION , ATTRACTING & PLEASING
CUSTOMERS .

IT IS A PLAN OF ACTION .
STRATEGY MAKING &
STRATEGY EXECUTING PROCESS

2. DEVELOPING A STRATGIC VISION &


MISSION STATEMENTS .
3. SETTING FINANCIAL & STRATEGIC
OBJECTIVES .
4. CRAFTING STRATEGY FROM MISSION ,
VISION & OBJECTIVES .
5. IMPLEMENTING & EXECUTING
STRATEGY .
6. MONITORING DEVELOPMENTS &
EVALUTING PERFORMANCES .
STEP - 1

DEVELOPING A STRATGIC VISION &


MISSION STATEMENTS
VISION STATMENT

“ TO BECOME NATIONAL COMPANY


WITH
VALUES & GUIDING PRINCIPLES
THAT EMPLOYEES COULD PROUD OFF
’’.
MISSION STATMENT
“ESTABLISH STARBUCKS AS THE PREMIER PURVEYOR
OF THE FINEST COFFEE IN THE WORLD WHILE
MAINTAINING OUR UNCOMPROMISING PRINCIPLES
WHILE WE GROW . ’’

GUIDING PRINCIPLES TO COMPLETE THE MISSION &


VISION

6. GREAT WORK ENVIORNMENT


7. HIGHEST STANDARD TO EXCELLANCE
8. CONTRIBUTE POSITIVELY TO COMMUNITIES &
ENVIORNMENT .
9. RECOGNISE PROFITABLITY.
10. DEVELOP ENTHUSIASTICALLY SATISFIED CUSTOMER.
11. EMBRACE DIVERSITY AS AN ESSENTIAL COMPONENT
IN THE WAY WE DO BUSINESS .
STEP - 2

SETTING FINANCIAL & STRATEGIC


OBJECTIVES
STRATEGIC OBJECTIVES
 TO BUILD A COMPANY THAT VALUED AND RESPECTED ITS
PEOPLE , THAT INSPIED THEM , AND THAT SHARED THE
FRUITS OF SUCCESS WITH THOSE WHO COTRIBUTED TO
THE COMPANY’S LONG TERM VALUE .

 MANAGEMENT EXPECTED TO HAVE 15000 STARBUCKS


STORES BY YEAR – ENDED 2005 & 25000 LOCATIONS BY
2013 .

 SCGULTZ DECIDED TO MAKE BUILDING A NEW


RELATIONSHIP OF MUTUAL RESPECT BETWEEN EMPLOYEES
& MANAGEMENT A PRIORITY .
FINANCIAL OBJECTIVES

THERE IS NO NEED TO SEE FINANCIAL


OBJECTIVES AS STRATEGIC OBJECTIVES
CLEARLY DEFINES THE FINANCIAL OBJECTS
WHICH ARE DIRCTLY OR INDIRECTLY BEHIND
THE STRATEGIC OBJECTIVES .
STEP - 3

CRAFTING STRATEGY FROM MISSION , VISION & OBJECTIVES


CRAFTING A STRATEGY
THERE WAS A LACK OF MANAGEMENT STAFF SO …

 APPOINT MR. DAVE OLSEN A SETTLE COFFEE BAR OWNER


 APPOINT MR. LAWRENCE MALTZ , WHO HAD 20 YEARS
EXPERIENCE WILL TAKE CARE OF FINANCE ,HUMAN RESOURCE
AND ALSO A VICE PRESIDENT

 NEW LOGO FOR THE NEW COMPANY.

 STOCK OPTION PLAN FOR THE EMPLOYEES .


 TAKE CARE OF PART TIME EMPLOYEES ALSO .

 MADE STAR BUCK A GREAT PLACE TO WORK .

 CUSTOMERS SHOULD HAVE POSITIVE EXPERIENCE .


STEP - 4

IMPLEMENTING & EXECUTING STRATEGY .


IMPLEMENTING & EXECUTING
STRATEGY
NEW STORES
OPEN FIRST STORE IN CHICAGO -1987.
IN NEXT SIX MONTHS
THREE MORE STORES
CARLIFORNIA (L.A ) TO HIGH QUALITY
& INNOVATIVE FOOD
(L.A ) CONSUMERS EMBRACED
STARBUCK QUICKLY .
SAN FRANCISCO
OPEN MORE & MORE STORES
2 20
3 30
4 32
5 53
• in winter season less people visit the place.
MADE QUALITY ASSURANCE BY FRESHLY ROASTED BENAS IN
SPECIAL FLAVOURLOCK BAGS THAT USED VACUUM PACKAGING
TECHNIQUES .
• NO FRANCHISEE…
TO KEEP THE COMPANY FULL CONTROL OF ITS PRODUCT .
THEY TOOK MONEY FROM
VENTURE CAPTIALISTS

3 3.9$ MILLION
4 13.5$ MILLION
5 15 $ MILLION
THEY WERE COMMITING LOSSES .

3 3,30,000$
4 7,64,000$
5 1.2$ BILLION
6 ONWARD THEY BECOME PROFITABLE
VALID REASONS BEHIND
LOSSES GIVEN BY HOWARD
WE HAVE TO ATTRACT A MANAGEMENT
TEAM WELL BEYOND OUR EXPANSION
NEEDS .
WE HAVE TO BUILD WORLD CLASS
ROASTING FACILITY .
WE NEED COMPUTER INFORMATION
SYSTEM SOPHISTICATED ENOUGH TO
KEEP TRACK OF SALES IN HUNDREDS
AND HUNDREDS OF STORES .
STEP - 5

MONITORING DEVELOPMENTS & EVALUTING PERFORMANCES .


SUCCESS OF STARBUCK
YEAR STORE
1987 17
1993 272
1996 1015
1999 2135
2002 5886
2003 7225
GROWTH OF STORES
8000
7000
6000
5000
4000
3000
2000
1000
0
1987 1993 1996 1999 2002 2003
OPERATING INCOME
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1998 1999 2000 2001 2002 2003

YEAR
DUE TO ALL THIS SKILLS AND IDEAS THE WAY IN WHICH HE HAD
EXECUTED THE STRATEGY AND MADE STARBUCK PROFITABLE

AS PER MY BEST KNOWLEDGE

HE DESERVE (A- ) GRADE .


Que -3 what was howard Schultz's original strategic vision for
starbucks? Is his present strategic vision different from the one
he had in the 1980s? How many times has his strategic vision
changed? Is his present strategic vision likely to undergo
further evolution?
 Past Strategy
 To provide best service to the customers with varieties of
coffee.
 Innovative products and services
 Mainly focused on workforce management.
 Just focused on the local market in seattle.

 Present Stately
Que-4 has starbucks strategy evolved as the
strategic vision has evolved?
Que-5 what are the key policies practices and
procedures that underline how howard schultz and
strategic mgt have implemented and executed the
chosen strategy?
 On becoming the CEO of the company the vision of the starbucks was
to make it a national company with guiding principles that employees
could be proud of .
 Schultz restored the old and honest employees of starbucks to give the
best service to the customers.
 Dave Lawrence was hired as a executive vice presented and charged
with leading operation, finance and human resources.
 New logo was invented to match the culture of the starbucks and
Giornale.
 New espresso machines were equipped and look more Italian than old
world nautical
 Chicago store opened in October 1987 as per expansion strategy
 Identifying inability of the customers for having a cup of coffee in the
winter season in Chicago, schultz solved the problem of freshness and
quality assurance by putting freshly roasted beans in special flavor
lock bags that used vacuum packaging technique.
 Portland, oregon was the next market the cmpany entred.
 Entered in L.A in late 1991.
 Opened 15 new stores in 1988, 20 in 1989, 30 in 1990, and 53 in 1992,
producing a total of 161 stores in US.
 Also went for franchising concept to retrieve the cost for new store
expansion.
 In order to make starbucks a great place to work schultz accepted to
expand healthcare coverage to include part-time workers.
 To oversee the expansion process starbucks created zone wise vice
presidents to direct the development of each region and to implant
the starbucks culture in the newly opened stores.
 Starbucks had created a new subsidiary, starbucks coffee
international, to orchestrate overseas expansion and build the
starbucks brand name globally via license.
 To accommodate its strategy of rapid store expansion, starbucks put in
systems to recruit, hire and train baristas and store managers.
 In august 2002 starbucks teamed up with T-mobile USA, the largest
carrier-owned Wi-Fi services, to experiment with providing internet
access and enhanced digital entertainment to patrons at over 1200
starbucks locations.
Que-6 what is your assessment of starbucks financial
performance during fiscal years 1998-03. Does the
company’s performance indicate that starbucks
strategy is working well?
SOME FINDINGS & SUGGESTIONS
GROWTH IN TOTAL NET REVENVUE
SHOWS GROWTH OF 25.51% EVERY
YEAR.
TOTAL NET REVENUE

4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
1998 1999 2000 2001 2002 2003
YEARS
GROWTH IN OPERATING INCOME
SHOWS GROWTH OF 31.21%
OPERATING INCOME
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1998 1999 2000 2001 2002 2003

YEAR
CURRENT RATIOS FOR THE YEAR 1998 -2003

YEAR RATIO

1998 1.52 :1

1999 1.67 :1

2000 1.33 :1

2001 1.47 :1

2002 1.54 :1

2003 1.90 :1
CURRENT RATIOS
• THE CURRENT RATIOS SHOWS THE COMPANY’S
ABILITY TO PAY DEBT IN SHORT TERM & IS GOING
TO BE IDLE ONE WHICH IS 2:1 .
• THE CURRENT RATIO SUGGESTS THAT THE COMPANY
IS FINANCIALLY VERY SOUND AS THE ASSET RATIO
IS FAVOURABLE FOR THE COMPANY .
• THE COMPANY IS UTILIZING THE CURRENT ASSET
PROPERLY .
FIX ASSETS
AS FAR AS TOTAL ASSETS ARE CONCERN COMPANY’S
FIXED ASSETS ARE ALSO INCREASED AS THERE IS
INCREASED IN STAR BUCK OUTLETS .

THE GROTH RATE IN FIX ASSETS IS ABOUT 42.76 %


WHICH IS SEEING THE EXCELLENT DEMAND OF THE
PRODUCT IN COMING FUTURE
 Starbuck had an agreement with Marriott Host
International that allowed Host to operate Star Buck
Retail stores in Airport location.
 And with Aramark Food And Serving for the Star stores
on university Campuses.
 Starbuck received the license fee and royalty.
 with this strategy licensed and Franchised stores
starbuck has opened 1422 Stores in US and 1257
stores internationally in 2003.
 Revenue is $150 mil from US and $250 mil from
international.
What issues confront the company
as of 2004?
What should company’s
management worried about?
 Issue of health care benefit to the part time
workers.
 Uneasiness among the customers due to
arrogant behavior of the employees as well as
lack of knowledge about the fine coffee.
 Due to acquisition of peet enterprise starbuck
employees began to feel neglected and they
didn’t receive a bonus due to tight financial
conditions.
 The first joint venture of the starbuck went
into failure.
Management's worried
 In 2003 there were 14000 specialty outlet of specialty
coffee drinks against starbuck by 2015
 No. of rival scale-up their expansion plan and local and
regional player would merge in a better position
themselves as alternative to star buck
 Company had to do something for making its outlet
more elegant that welcomed reward , and please
customer ( third place)
 To reach people ( geographical area) who are not
coffee drinker
What recommendations would you
make Howard to sustain the
company’s growth and support
continued strong financial
performance in the year ahead?
 Starbuck should allocate more of its budget towards
advertising for building the brand along with direct
marketing.
 Starbuck should look for new product through
innovation and target new market segment that
provide unique association among them.
 Star buck should target new market segment that
provide unique association among them.
 The company should maintain the balance between
the amount of dividends to be paid and to be
reinvested in the business.
 Starbuck should buy back its outstanding share from
market.
 Star buck should used its d/e ratio in a proper manner
What is the Starbucks Experience?
Q:5

What are the key policy practices and procedures


that underlie? How Howard Schultz and Starbuck’s
management have implemented and executed the
chosen strategy?
Howard strongly believes
in………..
“Making
Starbucks A
Great Place
To Work”
 HEALTHCARE BENEFIT TO PART TIME WORKERS

 Cost of the benefit to company - $1500 per


employee
 Cost of Hiring & Training new employee - $3000 per
employee
 Part time employees who are working more that 20
hour per week
 75% of the premium by Starbucks
 Extended Health coverage - Preventive care, Crisis
counseling, Dental care, Eye care, Mental health
 EMPLOYEE STOCK OPTION PLAN

 Give employee a chance to share in the


success of the company
 Bean Stock plan
 Stock options worth 14% of the base pay
 Employees now Became Partners
 Starbuck Became public company in 1992
 One of the most successful IPO in the year
 STOCK PURCHASE PLAN

 Eligible employee can contribute up to 10% of


their base earnings to quarterly purchase of
the company’s common stock @ 85% of going
stock price.
 5.7 million shares has been issued as of fiscal
year 2003.
 11,184 out of 35,000 eligible employees had
participated
 WORK PLACE ENVIRONMENT

 Employees are paid $9 - $12 which is higher


than minimum hourly wages
 Turnover rate is 65% against 150 to 400% of
other national retailers and fast food chains
 Turnover of store managers was just 25%
against 50% of other chain retailers
 79% employees – favorable environment
 72% employees- satisfied with their job
 “One of the 100 best company to work” –
Fortune Magazine
Other Fringe Benefits…..
 Medical insurance
 Dental and vision care
 Life insurance
 Sick time
 Paid vacations
 Free pound of coffee each week
 30% product discount
WHAT IS STARBUCKS
STRATEGY
• For Howard Schultz

• For Management and Employees

• For Shareholders

• For Customers

• For Suppliers and Partners


What are the key elements of star
buck's strategy as of 2004?
Does the company have the clear
strategic intent?
Key elements of star buck's strategy :
 To expand its business internationally.
 To recruit the people who are passionate
about coffee and provide them a skilful
training which familiarize them with
company’s value principle and culture.
 To experience the people with a unique store
ambience.
 To provide wider product line by offering vast
range of coffee beverages.
 To open up franchise along with starbuck’s
own store in various countries.
Company’s strategic intent :
 To establish starbuck as a most
recognised and respected brand in the
world.
 To open the new stores worldwide in
order to increase the revenue and market
share.
What grade would you give Howard
Schultz for the job he has done as
CEO of star bucks? Be prepared to
support your answer based on how
well (or not so well) he has
performed the five tasks of strategic
management discussed in chapter-
2.
Strategic vision
 To establish starbuck as a most
recognised and respected brand in the
world.
Setting objectives
 To open 1300 stores worldwide.
 To achieve sales growth of 3% to 7% that
could grow revenues by 20% per annum and
net earning by 20-25% annually for next 3 to
5 years.
 To recognise that profitability is essential to
future success.
Crafting strategy
 To expand its business internationally.
 To develop a customer satisfaction by
building the brand loyalty through persuading
starbuck’s exacting standards of quality and
flavour.
 To source greater range of coffee varieties to
customers from multiple geographic areas
which reduces the risk of weather, price and
changing economic conditions.
Implementing and
executing the strategy
 Entered into franchise and licensing agreements to
enter into global market.
 Employed the persons who were knowledgeable
about the products, who eagerly communicated the
company’s passion for the coffee and who possessed
the skills and personality to deliver customer services.
 Company gave the employees their chance to share in
the success of the company in order to make
harmonize relationship between the management and
its employees
Monitoring the strategy
 The company should evaluate their
performance quarterly basis and if any
deviations found then it should try to revise it.
What issues confront the company
as of 2004?
What should company’s
management worried about?
 Issue of health care benefit to the part time
workers.
 Uneasiness among the customers due to
arrogant behavior of the employees as well as
lack of knowledge about the fine coffee.
 Due to acquisition of peet enterprise starbuck
employees began to feel neglected and they
didn’t receive a bonus due to tight financial
conditions.
 The first joint venture of the starbuck went
into failure.
Management's worried
 In 2003 there were 14000 specialty outlet of specialty
coffee drinks against starbuck by 2015
 No. of rival scale-up their expansion plan and local and
regional player would merge in a better position
themselves as alternative to star buck
 Company had to do something for making its outlet
more elegant that welcomed reward , and please
customer ( third place)
 To reach people ( geographical area) who are not
coffee drinker
What recommendations would you
make Howard to sustain the
company’s growth and support
continued strong financial
performance in the year ahead?
 Starbuck should allocate more of its budget towards
advertising for building the brand along with direct
marketing.
 Starbuck should look for new product through
innovation and target new market segment that
provide unique association among them.
 Star buck should target new market segment that
provide unique association among them.
 The company should maintain the balance between
the amount of dividends to be paid and to be
reinvested in the business.
 Starbuck should buy back its outstanding share from
market.
 Star buck should used its d/e ratio in a proper manner

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