1 STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003. 2 STARBUCKS VIDEO An Interview with Howard...

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STARBUCKS STARBUCKS

EXERCISEEXERCISE

In BUSINESS STRATEGYIn BUSINESS STRATEGY

©2003

22

STARBUCKS VIDEOSTARBUCKS VIDEO

An Interview with Howard An Interview with Howard Schultz, Schultz,

Founder, Chairman & Chief Founder, Chairman & Chief Global StrategistGlobal Strategist

33

WHAT IS STARBUCKS WHAT IS STARBUCKS STRATEGYSTRATEGY• For Howard Schultz

• For Management and Employees

• For Shareholders

• For Customers

• For Suppliers and Partners

44

STARBUCKS CURRENT STARBUCKS CURRENT STRATEGYSTRATEGY

Continue the focus on growthContinue the focus on growth

Establish a leadership positions with company owned stores in key Establish a leadership positions with company owned stores in key

markets- USA, Japan, Australia, UKmarkets- USA, Japan, Australia, UK

Pre-emptively enter and aggressively grow in all targeted marketsPre-emptively enter and aggressively grow in all targeted markets

Leverage the brand into new product categories and channelsLeverage the brand into new product categories and channels

Continue operations improvementContinue operations improvement

Growth through innovationGrowth through innovation

Develop and maintain leadership talentDevelop and maintain leadership talent

Maintain our values, culture and guiding principlesMaintain our values, culture and guiding principles

55

Creating and Building a Creating and Building a BrandBrand

Identify elementsIdentify elements Target consumersTarget consumers Target needs (what do your consumers Target needs (what do your consumers

need?)need?) Target value proposition (why Target value proposition (why youryour

product?)product?) Target messageTarget message Mix, media, spend…Mix, media, spend…

Make sure all the elements are alignedMake sure all the elements are aligned

66

Aligning the Marketing Value ChainAligning the Marketing Value ChainWho are they? Psychographically Demographically Geographically

What are their current needs? Personal needs and usage occasions

Why Buy (Brand)? (Essence of the brand) Product line 1 Product line 2…

How do we communicate the “why”? For the brand? By product line?

TargetNeeds

TargetMessage

TargetValue

TargetConsumer How

aligned is

your brand?

77

Starbucks as a BrandStarbucks as a Brand

Attribute/action Starbucks

Practical attributes

Emotional attributes

Extend brand up/down

Product/line extensions

Territory extensions

Private label

Co-Branding

88

U.S. Coffee Market SizeU.S. Coffee Market Size

3838

STARBUCKS CASE ANALYSISSTARBUCKS CASE ANALYSIS What has made Starbucks successful?What has made Starbucks successful? What business is Starbucks in?What business is Starbucks in? When consumers buy Starbucks coffee what are When consumers buy Starbucks coffee what are

they buying?they buying? What are Starbucks core competencies and key What are Starbucks core competencies and key

strategic assets?strategic assets? Which growth strategy should Starbucks choose? Which growth strategy should Starbucks choose?

Why? Why? How would you implement the strategy you How would you implement the strategy you

choose & what are implications for the Starbucks choose & what are implications for the Starbucks economic model?economic model?

3939

MARKETS

PRODUCTS

Existing New

Existing

NewNew ProductInnovation

STRATEGIES TO GROW SALES

Market Penetration

MarketExpansion

Diversification

4040

MARKETS

PRODUCTS

Existing New

Existing

NewNew Product Innovation• Frappuccino• Tiazzi• Tazo teas

STARBUCKS STRATEGIES

Market Penetration• Expand In US• Add drive thru• Expand seating

Market Expansion• Barnes & Noble • Airports & airlines• Aramark

Diversification• Ice cream• Bottled Frappuccino

4141

Growth Opportunities & Value Growth Opportunities & Value ChainChain

DomesticRetail

InternationalRetail

Grocery Expansion

SalesPartners

On-LineMail Order

New Ventures

Sourcing Roasting Distribution Sales Consumers & Blending

Skilled buyersSkilled buyers

Forward Forward contractscontracts

Company Company plantsplants

-Kent, WA-Kent, WA

-Wilksbor, PA-Wilksbor, PA

Regional DCsRegional DCs

Direct delivery Direct delivery (DSD)(DSD)

2-3x retail 2-3x retail unitsunits

(potential (potential 5,500 per 5,500 per Specialty Specialty Coffee Assoc)Coffee Assoc)

AdvertisingAdvertising

Stored value Stored value cardcard

2x cups per 2x cups per dayday

2x penetration2x penetration

Regional plantsRegional plants Joint venture Joint venture

LicensesLicenses

UK, JapanUK, Japan

USAUSA Ice creamIce cream

Botttled drinksBotttled drinks

Coffee Coffee (beans/ground(beans/ground))

Foodservice Foodservice

Business Business AlliancesAlliances

-Airports-Airports

-Hotels, -Hotels, restaurantsrestaurants

Kraft licenseKraft license

Dreyer’s JVDreyer’s JV

Pepsi JVPepsi JV

Host MarriottHost Marriott

CatalogCatalog

Internet Internet

TeaTea

MusicMusic

GamesGames

4242

STRATEGIC ISSUESSTRATEGIC ISSUES Declining corporate growth rate Declining corporate growth rate Average ROA, ROE and ROCEAverage ROA, ROE and ROCE Morning day part focusMorning day part focus Growing importance of Frappuccino drinksGrowing importance of Frappuccino drinks Question on ability to implement diversificationQuestion on ability to implement diversification

-Acquisition s-Acquisition s --Internet /WirelessInternet /Wireless -Grocery Ventures-Grocery Ventures

Enormous hiring and training needsEnormous hiring and training needs Licensing Licensing -International-International -US Business alliances-US Business alliances Metrics and role of Starbucks CardMetrics and role of Starbucks Card

4343

GROWTH INTITIATIVESGROWTH INTITIATIVESCurrent:Current: US Retail ExpansionUS Retail Expansion International ExpansionInternational Expansion Business Alliances: supermarkets, retailers, Business Alliances: supermarkets, retailers,

foodservice, grocery productsfoodservice, grocery products New Ventures: Tazo, Hear Music, Value CardNew Ventures: Tazo, Hear Music, Value Card

Opportunities:Opportunities: New ProductsNew Products New Distribution Channels: vending, kiosks, New Distribution Channels: vending, kiosks,

foodservicefoodservice New MarketsNew Markets AcquisitionsAcquisitions

4444

ANALYSIS GRIDANALYSIS GRIDDomestic Domestic RetailRetail

InternationInternational Retailal Retail

GrocerGrocery y ChannChannelel


Online and Online and CatalogCatalog

New New ProductsProducts

PeoplePeople

LeadershipLeadership

Human Human ResourcesResources

Hiring needsHiring needs

Conflict Conflict ResolutionResolution

Change Change ManagemenManagementt

MarketingMarketing

Brand Brand EquityEquity

Hear MusicHear Music

Tazo TeasTazo Teas

Competitive Competitive PositionPosition

GrocerGrocery y kioskskiosks

Target Target marketsmarkets

Small townsSmall towns

Virgin Virgin RecordsRecords

Consumer Consumer ValuesValues

Value cardsValue cards

4545

ANALYSIS GRIDANALYSIS GRIDDomestic Domestic RetailRetail

InternationInternational Retailal Retail

GrocerGrocery y ChannChannelel


Online and Online and CatalogCatalog

New New ProductsProducts

EconomicsEconomics

FinancingFinancing Negative Negative cash flowcash flow

Profit Profit PotentialPotential

LicensingLicensing Calculate?Calculate?

Activity Activity Based Based CostingCosting

OperationsOperations

SourcingSourcing Fair tradeFair trade

OrganicsOrganics

ManufacturinManufacturingg

Third plantThird plant European European plantplant

Asian Asian plant?plant?

NegotiationNegotiation

Supply ChainSupply Chain DSD?DSD?

4646

HOW FAST SHOULD INTERNATIONAL EXPAND

4747

SHOULD THERE BE MORE NEW PRODUCTS EMPHASIS

4848

ANTICIPATE WHERE THE PUCK ANTICIPATE WHERE THE PUCK WILL BE…..WILL BE…..

FROST & PARTNERS

4949

STARBUCKS PERFORMANCESTARBUCKS PERFORMANCE

$8 billion Market Capitalization$8 billion Market Capitalization 20+% annual sales growth rate20+% annual sales growth rate 11 years of 5+% comparable 11 years of 5+% comparable

store sales revenue growthstore sales revenue growth 6,193 stores in 30 countries6,193 stores in 30 countries One of the top 9 companies to One of the top 9 companies to

work for in the USAwork for in the USA More than 10x as many retail More than 10x as many retail

stores as its nearest competitorstores as its nearest competitor Market leader in gourmet coffee Market leader in gourmet coffee

retailing and in supermarketsretailing and in supermarkets 20+% CAGR Share Prices20+% CAGR Share Prices

Source: Hoovers

SBUX Share Price Since IPO

5050

STARBUCKS REVENUES STARBUCKS REVENUES GROWTHGROWTH

$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000$2,200$2,400$2,600$2,800$3,000$3,200$3,400

'97 '98 '99 2000 '01 '02

$Millions

$975$1,308

$1,688

$2,178

$2,649

$3,289

5151

RETAIL STORE GROWTHRETAIL STORE GROWTH

0400800

1,2001,6002,0002,4002,8003,2003,6004,0004,4004,8005,2005,6006,0006,4006,8007,200

'97 '98 '99 2000 '01 '02 '03e

Licensed Locations

Company -Owned Locations

Nu

mb

er

of

store

s

1,4021,8862,498

3,501

4,709

5,886

7,086

5252

5%-9% COMPARABLE 5%-9% COMPARABLE STORE SALES GROWTHSTORE SALES GROWTH

0%

4%

8%

12%

'99 2000 '01 '02 '03e

6%

9%

6%

5% 5%

5353

OPERATING MARGINSOPERATING MARGINS

0%

2%

4%

6%

8%

10%

'97 '98 '99 2000 '01 '02

8.8% 8.3%

9.3% 9.7%10.6%9.7%*

* Excludes one-time items.

5454

NET EARNINGS GROWTHNET EARNINGS GROWTH

$0

$50

$100

$150

$200

$250

'97 '98 '99 2000 '01 '02

$ Millions

$55$68*

$101.6$94.5*

$181.2

$215


5555

Earnings Per ShareEarnings Per Share

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

'97 '98 '99 2000 '01 '02

$.66

$.75*

$.27 $.24*

$.46

$.54*


1 STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003. 2 STARBUCKS VIDEO An Interview with Howard...

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