CHAPTER: 1

1.0 Introduction

In this section I will present the reasons for choosing the topic. An introduction to the

Coffee Industry and the case company, finally the research problem, objectives and its

limitations, followed by an outline of the report.

1.1 Areas of Interest In deciding a topic for my management research report an important factor was that I would

enjoy the subject, and be interested in it. After enjoying the APDMS module, specifically the

strategic marketing management and managing financial principle and technique, I thought

Starbucks global expansion strategy, with a focus on India would be a suitable and I could

succeed in and enjoy enough to dedicate my time to.

Since I am more familiar with Indian economy and rapidly developing economy of India, I

have choose Indian market for Starbuck global expansion.

1.2 Overview of Starbuck CompanyThe very name Starbucks is practically synonymous with coffee. As opening the first location

in 1971 in Seattle’s Pike Place, nowadays, Starbucks has become the largest specialty coffee

store, with nearly 16706 stores, (whereas 8850 company operated stores and 7856 Licensed

stores) and more than 170,000 partners (employees) in more than 50 countries (Starbucks, as

of 27 Dec. 2009), and has already gone public in American and Japan market. Since 1992, its

stock has risen a staggering 5,000 percent.

In 1992, Starbucks became a public company, partnering with other companies, such as

Barnes & Noble, Inc. and PepsiCo. Starbucks Corporation grew quickly, opening many stores

throughout the world. Starbucks Corporation seemed to be on its way to achieving its goal of

becoming the most well-known coffee company in the world. In 1999, Starbucks acquired the

tea company by the name of Tazo. Starbucks also provide high-speed wireless Internet

connections in its stores. It now offers wireless broadband Internet service throughout North 1

America, offering T-Mobile HotSpot in the U.S. and Bell Hotspot in Canada. Music was a

natural evolution in Starbucks as it had been playing music in the stores for almost 30 years.

In 2004, Starbucks barista-in-chief Howard Schultz made a big push into music business,

aiming to transform the record industry. It took innovative action to connect quality music to

the Starbucks Experience by launching a revolutionary in-store CD burning service at the

Starbucks Hear Music Coffeehouse in Santa Monica, California.

Starbucks is one of the largest chains of coffee shops in the world.

Starbuck’s strategy focused on three components; high-quality coffee, intimate service, and

ambient atmosphere. Starbucks worked closely with growers in Africa, South and Central

America, and Asia-Pacific regions to insure the quality of its product. Starbucks called all

employees' "partners" and worked hard to train them with the skills necessary to best serve

the customer. The atmosphere at Starbucks was crafted after the European-style espresso bar.

Starbucks strives to obtain brand recognition worldwide through high quality products and

services.   The strong focus that is put on the customer at Starbucks is apparent from the

atmosphere and the staff that the company employs.   The staffs are well taken care of as far

as compensation and benefits.   To be environmentally friendly Starbucks gives to numerous

philanthropic efforts.   In addition to giving they have also established their own charities

throughout the years.   The company offers industry leading health benefits that begin after

initial ninety days that include medical, dental, and vision.   Full-time and part-time

employees are also eligible for stock option grants through Bean Stock, which is the

company’s wide stock option plan.   To achieve profitability and keep up with the costs of

employee benefits, Starbucks has expanded at an astounding rate domestically and around the

world.   The company currently operates in all 50 states in the United States as well as the

District of Columbia, and worldwide in 51 countries.

1.2.1 Business Mission

Starbuck’s vision is to become the most recognized coffee brand in the world. In order to

accomplish this goal, Starbucks follows four guidelines. The first of these is to use the finest

coffee beans to make their drinks. Starbucks prides itself on using the best quality supplies to

make their products. The second component is to make sure that consumers think of their

store first, over all of the other coffee companies by creating a memorable image. The third

component is providing a summary of the role of what Starbucks does. The company lacks in

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this component because it does not specify what business the company is in. The fourth and

final component is to strive and to reach the companies full potential. These guidelines are in

an effort to make Starbucks the most recognized and the most respected brand of coffee.

Starbuck’s mission statement is to, “establish Starbucks as the premier purveyor of the finest

coffee in the world while maintaining [their] uncompromising principles [as they] grow”

(www.starbucks.com). Starbucks has six guidelines that they follow when making marketing

decisions. The six principles are:

· provide a great work environment and treat each other with respect and dignity.

· Embrace diversity as an essential component in the way they do business.

· Apply the highest standards of excellence to the purchasing, roasting and fresh

delivery of our coffee.

· Develop enthusiastically satisfied customers all of the time.

· Contribute positively to our communities and our environment.

· Recognize that profitability is essential to our future success. (www.starbucks.com).

Starbucks’ mission is meant to benefit both its employees and its customers. Starbucks

believes that it is important to make their employees happy, so they will, in turn, to please

their customers. Starbucks is known for the good treatment of their employees and for their

high level of customer service. Their high quality products also make their name well known

and respected by their customers.

1.2.2 Marketing Objective

Starbucks believes it is important to have a good relationship with their customers wherever

they are located. For this reason, the company insists on using high quality goods and

services. The company also prides itself on being very open to diversity because they believe

that without diversity, their company would not be as successful as it is now. They are known

to be accepting of diverse groups of people because they bring in ideas for new growth

opportunities. Jim Donald, President and CEO of the Starbucks Corporation states, “When

we embrace diversity, we succeed” (www.starbucks.com). Starbucks believes that without

diversity, their company would not have grown into the highly successful international

company that it has grown into today.

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1.3 Research ProblemsThis research explains why Starbucks had to expand outside the US and the entry strategies it

adopted in international markets, and discusses the various risks faced by Starbucks and the

effect of these risks in its revenues in international markets. The research problems are

categorized under the following research question. In this research report my effort will be

concentrate to give effective insight on these research problems.

1) Identify the controllable and uncontrollable elements that Starbucks has encountered

in entering global markets.

2) What are the major source of risk facing the company and discuss potential solutions?

3) How might Starbucks improve profitability by entering in India?

4) What are some of their entry strategies? 

1.4 Purpose and objectivesThe purpose of this research report is to analysing how the Indian market is beneficial to the

Starbucks and develop marketing strategy for Starbuck in India that help to create a

competitive advantage over the competitors. In order to achieve this, I will aim to satisfy the

following objectives:

To solve the problems of this case study.

To recommend advices and solutions regarding the problems encountered of this

business.

To identify possible improvements this could be made within the company.

To attract the customers from the wide market for their products and service in new

stores.

To determine the marketing strategy of competitors, their product and services.

To analyse the external environment of Starbucks in order to find opportunities for

future profitability and success for the company in new market.

To analysis the views of prospective customers in India, their needs and how

4

Starbucks could satisfy those needs.

To develop the plan of expansion of business in Indian market for the company, from

which they can implement the recommendations into their business.

1.5 Scope and Limitation

The scopes of this research report are as follows:

The business will be represented by Starbucks Company.

The focus will be business expansion particularly in Indian market.

The focus will be on creation of overall entry strategy to Indian market.

This report will determine the various challenges of international expansion of Starbucks.

The implementation of the program that directed by these challenges will be discussed and

analyzed. This study will also gather secondary data from website and books. Every study has

its own limitation, since information regarding the Indian market will be collected and

analyze from internet and secondary sources. So the actual market condition and need of

potential customer of Starbucks may not fully obtain.

CHAPTER: 2

5

2.0 Theoretical Framework In this section I will introduce the theories and concepts which are used in the research report

in order to generate background information which will be used to analyse global expansion

strategy (and also the marketing strategy) of Starbucks Company to entering new markets

that help to formulate plan for expansion in Indian market. This section aims to provide a

theoretical framework relating to foreign market entry.

2.1 Literature Review

2.1.1 International expansion of Starbucks

The need for global strategy is outlined by the fact that companies are subject to global forces

and consumer demands. As a consequence, firms are faced with a challenge of modifying

their existent strategies to gain and sustain their competitive advantage in a rapidly changing

environment. Therefore, to create a successful global strategy, managers first must

understand the nature of global industries and the dynamics of global competition.

Currently, Starbucks has begun to look to international markets to further its sales and

growth. The company is now pushing their brand name internationally and it is very

optimistic about their potential growth.

With a stable business in USA, Starbucks plans on extensively expanding abroad. Starbucks’

international strategy is to utilize two expansion strategies—licensing and joint-venture

partnerships. The success of expanding into foreign markets is dependent on Starbucks’

ability to find the right local partners to negotiate local regulations and other country-specific

issues.

Starbucks exists in a few foreign countries in Asia. The company felt that Asia offered more

potential than Europe. According to one executive, “The region is full of emerging markets.

Consumers’ disposable income is increasing as their countries’ economies grow, and most of

all, people are open to Western lifestyles.” Finally, coffee consumption growth rates in

Southeast Asia are estimated to increase between 20 percent to 30 percent a year. With this in

mind, Starbucks has plans to invest $10 million in developing its Asian operations and up to

$20 million with its joint venture partners in Asia. (www.starbucks.com, 10/03/2010)

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Starbucks in Japan

On October 25, 1995, Starbucks Coffee International signed a joint venture agreement with

SAZABY Inc., a Japanese retailer and restaurateur, to develop Starbucks retail stores in

Japan. The joint venture partnership is called Starbucks Coffee Japan, Ltd. This alliance

proves to be a strong one because it combines two major lifestyle companies that will provide

the Japanese consumer a new and unique specialty coffee experience. Under this partnership,

Starbucks opened its flagship Tokyo store in the upscale Ginza shopping district in 1996, its

first retail store expansion outside of North America and Europe. Since then, the number has

grown to 368 stores in Japan.

Japan is an essential part of Starbucks’ international expansion plan because the nation is the

third largest coffee consuming country in the world, behind the U.S. and Germany. Japan is

also an ideal country because it has the largest economy in the Pacific Rim.

However, profits from the Japanese venture will not happen for several years. Operating

costs, like rent and labour, in Japan are extremely high, and Starbucks will also have to pay

for coffee shipment from its roasting facility in Kent to Japan. Retail space in downtown

Tokyo is also more than double that of Seattle’s rent. Starbucks plans to eventually open a

roasting plant in Japan to help keep costs down. However, this is contingent if the stores in

Japan prove to be a success.

Starbucks in Singapore

The first Starbucks coffee outlet in Singapore opened on December 14, 1996, in Liat Towers,

with the help of BonStar Pte. Ltd., a subsidiary of Bonvests Holding Ltd., a Singaporean

company with food services and real estate interests. The store in Liat Towers is located in

Singapore’s main shopping district on Orchard Road, which is a very trendy shopping centre

where the French department store, Gallery Lafayette, and Planet Hollywood reside. The

licensing agreement with Starbucks currently only covers Singapore, but Bonvests hopes to

expand the franchises into other Asian markets. Starbucks’ expansion into Singapore is its

first expansion into Southeast Asia.

Bonvests is an ideal partner for several reasons. Bonvests has acquired expertise in running

food businesses, like the local Burger King chain. They also know and understand the local

consumer market, government regulations, and the local real estate market.

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Starbucks chose Singapore for its entry in the Southeast Asian market because of the highly

“westernized” ideas and lifestyles it had adopted. Some have described Starbucks as being

another American icon, like McDonald’s.In addition, the market in Singapore has tremendous

growth potential. Finally, the Singaporean market still has no clear leader in the specialty

coffee industry. This means that Starbucks still has a good chance to become one of the top

contenders in this market.

Starbucks in China

It is probably a tad easier to accelerate the sale of one’s products in a market where demand

already exists as compared with markets that has a large number of potential consumers and

an emerging economy but low demand for the product. As is the case with China that fits the

above description down to it being predominantly tea-consuming and one of the smallest

coffee markets in the world.

When Starbucks inaugurated its first outlet in the World Trade Center in Beijing, China in

January 1999, it needed to proceed with less pace than it was used to. The company now sells

coffee through around 350 outlets that are mostly concentrated in Beijing and Shanghai. The

company has collaborated with different partners for its operations in China.

A replication of its stores concept worldwide, Starbucks in China caters mainly to urban

working people and thus its outlets are located in commercial areas. As regards advertising

for the Chinese market, Starbucks depends less on domestic advertising and more on

promotion through coupons and visits, which draw first time consumers. Hence, although a

challenging task, the company is determined to carve a niche for itself in China’s beverage

market.

2.1.2 Mode of entry

There are four primary market entry modes

Exporting (indirect and direct)

licensing

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Joint venture, and

Direct investment (Kotler & Keller, 2006)

Entering new markets, despite the huge potential that it provides, does involve big risks.

Many companies therefore do not enter a new market until they for various reasons are

triggered do so. The trigger might be an external request to sell abroad or that the company

feels that it can’t survive without entering new markets (Kotler & Keller, 2006, p. 669). With

the risks included in the internationalization process, the strategy to enter a new market is

crucial and below we will look at different ways that this can be done.

Exporting (indirect and direct)

The company sells to a new market and might adapt it to the new market. The goods may be

indirectly or directly exported but regardless of which, the product will be produced in the

home country. Indirect export: The Company works through independent intermediaries.

Direct export: The Company handles its own exports Licensing the company (licensor) issues

a license to a foreign company (licensee) to use a manufacturing process, trademark, patent,

trade secret, or other item of value. The licensee pays a fee or royalty for this.

Joint Venture:

In a joint venture the company partners with a foreign company or investor in a new company

where ownership and control is shared. The reason for this may be either out of necessity or

desire. The company may be limited in terms of funds, know-how or resources to engage in

the venture alone or the host country may have rules and regulations that require a joint

venture to be formed if the market should be entered.

Direct investment:

The company builds its own facilities or buys part or full interest in a local company. This

may entail a sole venture, i.e. a wholly owned subsidiary.

Source: Kotler & Keller (2006)

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Licensing

Another way to enter a new market is to license a local company to use one or several

components of the business concept. For a fee or royalty the company can license another

company to use a manufacturing process, trademark, patent, trade secret or other business

component. The advantage of licensing for the licensor is that it can enter a new market at

little risk. For the licensee the advantage is that it can gain production expertise or a well-

known product or brand name. But licensing also has its disadvantages in that some control is

lost, and that a potential competitor may have appeared when the license terminates. Profits

have also been given up if the licensee is very successful (Kotler & Keller, 2006, p. 676).

Typically the first step will be for the company to get involved in indirect export either on its

own initiative or as a response to a spontaneous order. As business grows the company will

then go through a set of stages until it finds a strategy suitable for its line of products. Each

step will increase the risk and commitment, but at the same increase the profit potential and

possibility to control sales (Agarwal & Ramaswami, 1992; Kotler & Keller, 2006).

2.1.3 Fast food chain business in India

Fast food is one of the world’s largest growing food type. in last six years foreign investment

in this sector stood at $8 million which is about one fourth of total investment made in this

sector. The major players of fast food chain business are:

Mc Donald’s

Domino’s pizza

Pizza hut

Subway

KFC

Nirulas

Coffee day

Barista

The reason behind the success of Multinational chain is their expertise in product

development, quality standards, service level and standardized operating procedure in their

restaurant and also strength that they have develop around the world.

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Causes of market growth of chain business in India

Gender role:

Female have started working outside, so they have no time for their home and

cooking food.

Customer sophistication:

Consumers are becoming more sophisticated now. They don’t want to cook food and

spend their time and energy in house hold work.

Double income group:

Emergence of double income group lead to increase in disposable income.

Large population:

India is second largest country in terms of population so it has large potential market

for fast food chain business.

Economic liberalization:

Economic liberalization of 1991, most of the tariff and non tariff barrier are removed

that attract multinational company to invest.

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CHAPTER: 3

3.0 Methodology

I have undertaken a case-study approach; I came to this approach due to my research

question. My research questions are focus on specific company. A company specific thesis

needs to be focused on that company.

I will conduct a case study based on both qualitative and quantitative sources. Buying and

consumption behaviour of people and customers attitude towards the company’s product will

be analysed by a qualitative approach, allowing me to draw my own conclusions based on

results.

Company strategy, market trends, and financial information will have a quantitative and

qualitative approach. Buying behaviours will be observed in a qualitative manner.

In this research report evidence are collected mainly from secondary sources. I have generally

located journals by using Google. This possibility was especially helpful while I live in

London since I could not collect primary data about Indian market situation. And I could not

make access to any good library in limited time. Secondary data have been collected via the

internet, reports and newspapers.

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CHAPTER: 4

4.0 Analysis of business and market- Starbucks CompanyIn this section Starbucks Company is analysed. The company’s strategies and policies

policies, critical success factors, strengths and weaknesses and Poter’s five force analysis will

be assessed by analysing the data from company website and journals.

4.1 Analysis of Company strategies4.1.1 Starbucks’ global expansion strategy

The Company’s retail goal is to become the leading retailer and brand of coffee in each of its

target markets by selling the finest quality coffee and related products and by providing

superior customer service, thereby building a high degree of customer loyalty. Starbucks

strategy is directed towards increase of Starbucks’s market share in existing markets and new

markets worldwide to support the Starbucks brand through the introduction of new products

and the development of new distribution channels.

The Company has vision of future with 25,000 stores, at least 10,000 of them in North

America. Overseas, it project 1,500 stores in Latin America 6,000 in Asia pacific region and

combined 7,500 in Europe, Middle East and Africa.

Starbucks generally expand its business in overseas through joint venture or licences which

are differing from the domestic approach where the stores largely company owned. The

Starbucks’ this idea might beneficial in several reason, experienced local partner can help

identify location, get relief from tax issues and give Starbucks stores more community

appeal.

The company does not offer franchising opportunities. Though in recent years Starbucks had

begun entering into a limited number of licensing agreements for store locations in areas

where the company was not able to locate their shops due to limits in capability. There is

much value in transferring knowledge and best practices between parts of a global firm. To

protect Starbucks quality brand information is carefully shared with licensees through

training, at the same time the Company assures tight strategic control.

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In an international joint venture, partner chooses store sites, these are submitted for approval

to Starbucks, but the partner already does selection work. Cydnie Horwat, International

Assets Development System & Infrastructure explain how the Starbucks market entry plan

helps in profitable growth.

“When first entering a market, we’re looking for different things in the first one to three years

than later on. During these early years, we’re building our brand. Our stores are the biggest

source of advertising, since wedo not do a lot of separate advertising. So we have a higher

investment in stores in the first three years. About 60-70% of stores opened in these first

three years are our high brand-builders”.

Again Horwat says:

“First, we look for extremely visible sites in well-trafficked areas and focus on three major

factors: demographics, branding potential, and financials. Second we categorize sites on an A

to D scale. ‘A’ sites are ‘signature’ sites that are qualitatively superior to all other sites within

the trade area [an area within which Starbucks chooses to locate one store]. We rarely take a

‘C’ or ‘D’ store. Third, we ask our international Market Business Unit (MBU) to send in the

‘site’ submittal package with quantitative and qualitative measures, such as how the site

meets Starbucks’ established criteria and the partner’s agreed-upon criteria. This package is

reviewed by a number of functional units--operations, finance, and real estate--within the

International Group. Fourth, we move into the design phase, which is done in Seattle using

information provided by the partner. Next we negotiate the lease with landlord and initiate the

construction when the appropriate permits are obtained. Finally, we turn over the store to

operations. The whole process takes about 13-16 weeks from start to finish”.

4.1.2 Starbucks’ Original Generic Strategy

As defined by Michael Porter there are three potentially successful generic strategies: overall

cost leadership, differentiation and focus. Overall cost leadership implies the pursuit of cost

reductions in all areas of a firm through tightly controlling overhead, avoiding marginal, less

profitable consumers and sacrificing research and development, customer service, advertising

14

and other areas not pertinent to the direct manufacturing of a product. The generic strategy of

differentiation involves the creation of something that is perceived by the industry as being

unique. This can take on many different forms including but not limited to brand image,

technology, features, dealer networks and customer service. The last generic strategy

mentioned is focus, which targets a particular group, geographic market, or segment of a

given product line. (Porter, 1985, p. 25)

The Starbucks seen today would seem to fit the generic strategy of differentiation; however,

the original strategy used by Starbucks was closer to the generic strategy of focus with an

emphasis on differentiation within the particular target consumer segment.

The following factor Force Company to adopt differentiation strategy:

It has access to leading scientific research on coffee industry.

Highly skilled and creative product development team.

Strong partner with the ability to successfully communicate the perceived strengths of

the product.

Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by competitors and

changes in customer tastes. Additionally, various firms pursuing focus strategies may be able

to achieve even greater differentiation in their market segments.

The analysis of generic strategy of Starbucks gives clear view about which strategy is going

to adopt in new market segment. Because most of the Indian population lives in village

(According to senses report of 2001 around 70% of Indian lives in village), Starbucks should

focus on few urban population. Store should be established in main city where most of the

wealthy population live.

4.2 Critical Success factors Critical success factors are strategic factors crucial to the success of an organisation; they are the

strengths that critically affect its success. Starbucks must give customers what they want and

better than competitors. Analysis of Starbucks Company has led the following CSF’s:

• Emotional Connections:15

• People want to be a part of something that they can believe in.

• Companies that are serving these emotional needs of customers will

standout.

• Different than just selling a cup of coffee - they have an emotional

relationship with customers.

• Focus on the Customer:

• ‘Servant Leadership’ - leaders focus on creating a shared vision for all

employees

• Fosters interdependent, honesty, empathy and managing with respect

• Owned and operated by company/employees, not franchise

• Act as one organization, not functional silos, and learn from each other

• Represents a place between work and home, to relax, meet friends, and

enjoy a great cup of coffee

• The Need for Speed

For years, Starbucks has been focused on reducing customer wait time

• Most of the Americans say they pick a restaurant based on how much

time they have.

• Starbucks implemented many innovations to speed up the process.

• On average, it takes about 3 mins. less to complete

an order today versus 5 yrs. ago.

• Wireless Connection

• All from the comfort of your favorite cozy chair

• Allows quick and easy access to e-mail, files, or the Net

• Get work done in coffeehouse comfort.

• Starbucks Website offers a free day pass for T-Mobile HotSpot service

account

• What you need: A wireless card, notebook computer or Pocket PC

• Mass Customization

• Every customer is unique.

• Individually customize goods/services to create a unique experience

for customers.

• Customers are showing that they will pay much more for the entire

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experience.

• Differentiation from competitors = known for being the company

giving customers exactly what they want.

These are the key success factors as competitive weapons to win the competitors in a

competitive environment. As I illustrate before there are many companies operating in a

similar industry In India. Starbucks could use these competitive advantages to compete with

competitors.

4.3 SWOT AnalysisThe overall evaluation of business’s strengths, weaknesses, opportunities, and threats is called

SWOT analysis. It consists of analysis of external and internal environments.

4.3.1 Internal Environment (Strength and Weakness) Analysis

Strength and weakness are the outcome of internal environment of organization. Each

business need to evaluate its internal strengths and weaknesses in marketing, finance, and

organizational capabilities. (Kotler & Keller, 2007, p30)

Strength

Starbucks Corporation is a very profitable organization,   earning is about $600 million in

2009.The company generated   revenue of more than $9000 million in the same year.       It is

a global coffee brand built upon a reputation for fine   products and services. Starbucks was

one of the Fortune Top 100 Companies to Work   For in 2005. The company is a respected

employer that values   its workforce.      

Established Brand Image

The strong brand of Starbucks is one of the major strength. The policy of company is

to establish its store where its brand is previously recognized. For example, In India

Starbucks is well known brand because of image of its product.  The company has

strong brand equity because of the quality of the products that they offer. Starbucks

prides itself with offering exclusive coffee products or products that customers cannot

find in other coffee shops. People make the effort to go out and purchase the exclusive

coffee of Starbucks. The company also enjoys the benefit of satisfied employees

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expressed in the recognition of the company as Fortune’s top 100 companies to work

in.

financially strong

Starbucks is one of the profitable company in the world. Profit from the business is

one the important strength, so that company can use its profit for expansion of its

business.

High quality coffee

In order to ensure that the quality of coffee beans stayed at a consistently high level,

Starbucks pursued strategies to secure their supply-chain. In spite of the extraordinary

domination Starbucks eventually had within the specialty coffee industry, they never

utilized their market power directly against their coffee suppliers to lower bean prices

and, thus, improve their profits.

Weaknesses  

Starbucks has a reputation for new product development and creativity. However, they

remain vulnerable to the possibility that their innovation may falter over time.

The organization has a strong presence in the United States of America with more than

three quarters of their cafes located in the home market. It is often argued that they need

to look for a portfolio of countries, in order to spread business risk.

The organization is dependent on a main competitive advantage, the retail of coffee.

This could make them slow to diversify into other sectors should the need arise.

4.3.2 External Environment (Opportunity and Threat) Analysis

A business unit has to monitor key macro environment forces(Demographic-economic,

technological, political legal, and social- cultural) and micro environment actors(customers,

competitors, distributors, and suppliers) that affect its ability to earn profits.

(Kotler & Keller, 2007, p30)

Opportunity

Significant opportunities exist, especially outside domestic US market for joint ventures.

Starbucks could overcome planning restrictions; reduce costs through co-locating at

supermarket chains, pubs & restaurants.

Starbucks are very good at taking advantage of opportunities. In 2004 the company

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created a CD-burning service in their Santa Monica (California USA) cafe with

Hewlett Packard, where customers create their own music CD.

New products and services that can be retailed in their cafes, such as Fair Trade

products.

The company has the opportunity to expand its global operations. New markets for

coffee such as India and the Pacific Rim nations are beginning to emerge.

A new international market will be more beneficial to Starbucks where a market

vacated by an ineffective competitors.

Co-branding with other manufacturers of food and drink, and brand franchising to

manufacturers of other goods and services both have potential.

Threats

An environmental threat is a challenge posed by an unfavourable external trend or

development that would lead, in the absence of defensive marketing action, to lower sales and

profits.

Several international companies also operate through the exclusivity of products espoused by

Starbucks. This means that Starbucks has to continuously develop new varieties of their

products if the company is to succeed in maintaining product differentiation.

Another threat is the superiority of the access of competitors to channels of distribution.

Companies selling ground coffee in supermarkets enjoy the benefits of this channel of

distribution that Starbucks does not enjoy. Starbucks only provides its products and services

to people within the vicinity of its cafes.    

(www.knol.google.com, 26/03/2010)

4.3 Michael Porter’s 5 Forces Analysis- StarbucksFive force framework is a model that describes the interaction of external influences (forces)

within an industry that present threats and opportunities for an organization. Poter’s five force

framework can help in identifying the sources of competition in an industry. An organization

must confront:

1. rivalry of competitors within its industry;

2. threat of new entrant;

3. threat of substitute;

4. the bargaining power of customer; and

5. the bargaining power of suppliers

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-together these determine competition in an industry or market.

(Kelly, 2009, p61-64)

This model helps to access the potential opportunities Starbucks can enter if wanting to reach

new markets.

1. Rivalry of competitors within its industry

It is clear that Starbucks has few major competitors, and the competition has nowhere

Starbucks' volume of operations. Starbucks is the leading retailer, roaster and brand of

specialty coffee in the world. Smaller competitors, however, pose potential threats to the

company.

2. Potential for new entrants

The second force in Porter's model, which will be applied to the analysis of the industry

environment in which Starbucks was established, is the potential for new entrants. The

primary deterrents to new entrants into any industry are the barriers to entry. The higher the

barriers to entry are within any given industry the smaller the threat of new entrants to that

industry.

Starbucks, being the world leader in its industry, has controlled access to distribution

channels. Starbucks has exhibited this control over distribution channels by setting guidelines

for their suppliers to follow. These guidelines will be discussed in more detail in the

discussion of the industry bargaining power of suppliers. Starbucks is constantly innovating

and showing strong product differentiation in their industry. The industry, following

Starbucks' lead, is becoming more differentiated. For example, five months after Starbucks

introduced a prepaid Starbucks debit card, Seattle's Best launched its version of the marketing

product (hoovers.com, 25/03/2010). This industry differentiation is an opportunity for

Starbucks, and a threat to potential entrants. 

Bargaining Power of Buyers 

Porter's next force is Bargaining Power of Buyers. Starbucks' customers are the buyers. The

Preferred Office Coffee Provider is a plan developed by Starbucks in which companies can

buy the ingredients and tools necessary to brew "the perfect cup of Starbucks Coffee," in

large quantities for their offices (starbucks.com, 25/03/2010). Starbucks' typical customer

buys small quantities of their products. Products purchased at Starbucks are highly

differentiated and unique. From personal experience, we know that there is an enormous

selection of coffees at a Starbucks' coffee shop. At Starbucks, it is possible to buy a large

20

number of products, from coffees, ice cream and Tea, to music and coffee mugs. Customers

will face no switching costs in switching premium coffee suppliers from Starbucks, to other

company. This is a threat to Starbucks. Another threat to Starbucks is that their customers

have the ability to brew their own coffee.

Bargaining Power of Suppliers 

Porter's fourth industry force is bargaining power of suppliers. South and Central America

produce the majority of coffee traded in the world. Starbucks depends upon both outside

brokers and direct contact with exporters for the supply of green coffee. The supply of coffee

is affected by weather conditions, and the health of coffee trees. There are no substitute

products for the coffee beans Starbucks must buy. This is a potential threat to the company.

Starbucks, however, has exhibited how little control its suppliers might actually have. In

2001, Starbucks announced new coffee purchasing guidelines, developed in partnership with

The Centre for Environmental Leadership in Business. These guidelines are based on the

following four criteria: Quality baselines, social conditions, environmental concerns, and

economic issues. Only suppliers who can meet Starbucks' coffee standards will be able to

supply the giant company. The supplying industry to Starbucks, therefore, has few

companies. This is a potential threat. Starbucks will offset this threat by paying a premium of

up to ten cents per pound of coffee to vendors based on how well their coffee meets

Starbucks' standards. (starbucks.com, 25/03/2010)

Threat of Substitute Products 

In the premium foods and coffees industry, there are substitute products. Other beverage

industries can satisfy the customer's need for a drink, and other food industries can satisfy the

customer's need to eat. There are obviously good substitutes to Starbucks' products. This is

why image is very important for Starbucks, as well as the company's ability to innovate and

differentiate. Starbucks has added a line of tea, Taza teas, to their menus. There is a large

threat of substitute products in a food and drink industry. Starbucks has created an image, and

has differentiated so that many of their substitute products are part of the company. At a

Starbucks coffee shop, a customer can eat ice cream, and drink a Pepsi, while his friend

drinks tea while eating a pastry. 

Significant of Poter’s five forces in analysis of global expansion

21

It is necessary to understand that Starbucks Corporation is the world leader in their industry.

When we analyze the five forces we could found that Starbucks is strong in competitive

environment of its industry. This competitive advantage over the competitors helps Starbucks

to success in new market segment as well. For example, the large size of the company offsets

many of the threats of competition and also the Starbucks' ability to innovate and differentiate

has minimized the risk of potential entrants in new market segment. Starbucks has offset the

potentially high bargaining power of its suppliers by issuing coffee guidelines which is

described in previous heading.

CHAPTER: 5

22

5.0 Financial Analysis of the company

Financial analysis of the Company is essential for global expansion. While company is

going to expand into new market, the company have to make following financial

decisions:

1. What to invest in;

2. How to fund investments;

3. How to manage the international global cash resources.

(Kelly, 2007, 25/03/2010)

Investment decision generally concern outlay of cash, the acquisition and development or use

of assets and speculation, i.e. risk and reward. A decision to invest in activities in a given

country must consider the risk; threat and opportunity in that country’s macro environment,

which will describe in next chapter.

Throughout fiscal 2008, Starbucks continued to experience declining comparable store sales

in its US stores, primarily due to lower customer traffic. With the US segment representing

76% of consolidated revenues, the impact of this decline on the Company’s financial results

for fiscal 2008 was significant. For fiscal year 2008 comparable store sales declined 5% in

the US, with a declining trend over the course of the year, ending with a decline of 8% in the

fourth quarter.

Starbucks business is highly sensitive to increases and decreases in customer traffic.

Increased customer visits create sales leverage, meaning that fixed expenses, such as

occupancy costs, are spread across a greater revenue base, thereby improving operating

margins. But the reverse is also true — sales de-leveraging creates downward pressure on

margins. The softness in US revenues during fiscal 2008 impacted nearly all consolidated and

US segment operating expense line items when viewed as a percentage of sales.

Despite challenging economic and consumer environments in the U.S. and abroad, Starbucks

has seen sales and earnings rise, with key metrics pointing to broad-based improvements in

its financial and operating performance and overall fiscal health in 2009. The company has

reported that comparable store sales trends began to improve in the second half of fiscal

2009, and returned to positive territory in the first quarter of fiscal 2010, an improvement that

contributed to the company recently reporting the highest quarterly earnings in its 39-year

23

history.

Starbucks also saw record free cash flow in fiscal 2009, and has projected that free cash flow

will further increase to one billion dollars in fiscal 2010. Together, these improvements are

enabling the company to continue to make key long-term investments in the U.S. and abroad,

increase by 15 million the number of shares authorized for repurchase and, for the first time

in its history, initiate a cash dividend to shareholders.

Table: Comparison of financial performance between 2008 and 2010

($ in millions) 27-Dec-09 28-Dec-08 Change

Revenues $2,722.7 $2,615.2 4%

GAAP Operating Income $352.6 $117.7 200%

GAAP Operating Margin 13.0% 4.5% 850 Bps

Non-GAAP Operating Income $370.9 $193.2 92%

Non-GAAP Operating Margin 13.6% 7.4% 620 Bps

Comparable Store Sales Growth 4% -9%

(source: investers.starbucks.com, 26/03/2010)

The revenues for Q1 FY10 were $2.7 billion, compared to $2.6 billion in Q1 FY09. The

higher revenues were attributable to a 4% increase in comparable stores sales and the impact

of foreign currency translation related to the weakening of the U.S. dollar, most notably

against the Canadian dollar. A smaller store base and a decline in specialty revenues partially

offset these increases.

Non-GAAP Q1 FY10 operating income totaled $370.9 million, representing a non-GAAP

operating margin expansion of 620 basis points to 13.6%. This improvement was driven

mainly by lower cost of sales including occupancy costs related to operational initiatives,

which resulted in lower product costs and reduced store waste, and to lower commodity costs

in the U.S. Also contributing to the margin expansion were lower store operating expenses

resulting from initiatives focused on in-store labour efficiencies and the impact of the closure

of underperforming company-operated stores. These improvements were partially offset by

higher general and administrative expenses due in part to higher performance-based

compensation expenses in the quarter.

The improving financial performance of the Starbucks creates way to attain its strategy to

24

expansion of its business in international market. Despite the financial crises in 2009, overall

performance of the Starbucks was remarkable as compare to other company like Mc donalds

and Costa Coffee.

CHAPTER: 6

25

6.0 Environmental Analysis

6.1 PEST analysis6.1.1 Political Environment

The Indian economy has been experiencing more stability as far as the Government and

political scene is concerned. There has been reduced internal turmoil resulting from political

influences and this has created a better working environment for industries and business in

India. The current government headed by Indian National Congress party(INC) has shown

more tolerance towards foreign countries in general and towards the foreign investment in

particular. On the basis of this, it becomes safer for Starbucks to enter into an alliance/joint

venture with an Indian company.

6.1.2 Economic Environment

The Indian economy has been predominantly based on agriculture as the majority of its

population, mostly in rural area, is dependent on agriculture for sustenance. However, over

the last decade or so, the ratio is changing in favour of industrial and the services sector

(www.eiu.com, 27/03/2010) with nearly 83% of the GDP arising out of these two sectors.

Overall, the Indian economy faces a tough task as the fiscal deficit has been increasing and

the policies required to overcome it have been found difficult to implement. Many of the

industries and sectors of the country depend on heavy subsidies by the government and

restriction has been put on the extent of FDIs permitted in certain sectors. In spite of the

Prime Ministers’s promise to open up the retail sector FDIs, the issue has been mainly

unresolved. However, certain sectors like manufacturing, advertising, pharmaceuticals,

hotels, tourisms and restaurants and some other have been opened to 100%FDI.

The world’s largest democracy is currently also one of the largest and most attractive markets

in the world. As a result, Starbucks or its likely Indian partner may find it that much easier for

establishment of the joint venture and retail outlet in India. The global economy crises seem

to have less impacted the Indian economy as compared to western and more developed

nations. The Indian economy has been growing at an average rate of 7% for the last decade

and has maintained an above average growth despite the world economy crises.

(www.cia.gov, 27/03/2010)

The trend is likely to continue and this makes India a safe investment proposition, especially

if Starbucks is likely to consider entering India into the near future. Starbucks might have to

26

explore early opportunities in India’s largest industrial estate like Gujarat, Maharashtra,

Haryana, Karnataka and Tamil Nadu.

7.1.3 Socio- Cultural Environment

India’s per capita GDP was estimated to at $2800 for the year 2008 compared to $2700 for

2007(www.cia.gov, 27/03/2010). This indicates that the people are able and willing to spend

more money on life quality improvement. This has implications on coffee consumption as

coffee is still considered as an exclusive beverage compared to the traditional tea.

With the changing culture of the Indians towards coffee consumption and the increase in

disposable income amongst the youth, the cafes have come to act as a place for socialising

and as hangouts mainly for collegians and youth people. The Indian consumers are more

price sensitive, and in many part of the country the Rs 35.00 (approx. $0.70) for a cup of

Cappuccino (at Barista and CCD) may still be considered a Luxury. The most challenging

task for Starbucks will be to match this pricing if it aims to be successful in India. With the

average Starbucks coffee priced at over $3.00 (approx. Rs. 150.00), Starbucks might possibly

face a greater problem to fixing the price. (However, it remains the options for Starbucks that

while the local chains like Cafe Coffee Day (CCD) and Barista focus on the large low end

consumer markets, Starbucks could cater to the needs of the smaller but growing upper class

people, thus it could reduce competition and maintaining its niche image to the environment.

One area where the Starbucks can focus is Corporate Social Responsibility (CSR) and it can

formulate the policies towards upliftment of the Indian rural community. It could gain the

good image among large proportion of the population from these policies whereas, many

company are not directly involved with environment conservation and similar efforts.

6.1.4 Technological Environment

India coffee has been improving in quality continuously and almost 80% of India’s coffee is

exported. With the low cost of labour and easy availability of high quality coffee beans,

Starbucks would be well placed to do business in India.

6.2 Competitors analysis

27

Unlike the China, Starbucks already lost the advantage from being first mover in India. In

most of the large metropolitan areas in India have already been occupied by current competitors

within the specialty coffee industry. Major players in similar industry in Indian market are

Cafe Coffee Day (CCD) and Barista could be main competitors of Starbucks.

Cafe Coffee Day is a chain of coffee shops in India having its headquarters in Karnataka. It

has the largest cafe retail chain in India – with 873 cafes in 135 cities. The cafe chain has had

much success riding, and to some extent creating, the cafe culture wave that swept

across metropolitan India following strong economic growth resulting in an increase in

youth spending power. It has even tied up with Worldspace and Microsence to enable its

cafes with satellite radio and Wi-Fi, respectively. Its first Wi-Fi cafe was opened on Lavelle

Road, Bangalore.

(www.cafecoffeeday.com, 27/03/2010)

Another player is Barista; Established in February 2000, Barista Lavazza is noted as a

pioneer of Indian cafe culture. The Barista Lavazza chain of espresso bars delivers a truly

Italian coffee experience in warm, friendly and relaxed environment. It aims to provide a

comfortable place for people to unwind over interesting conversations and a cup of coffee.

Barista Lavazza consists of young adults, who are exposed to global lifestyles and appreciate

the authentic flavours and tastes of coffee. At last count, the Barista Coffee Company Limited

has over 200 Barista Lavazza Espresso Bars and Barista Lavazza Cremes in over 30 cities

across India. Besides the Indian sub-continent, Barista Lavazza also has cafes in locations

across Sri Lanka, Oman and the UAE. (www.barista.co.in, 27/03/2010)

There are many competitors in the coffee industry. The primary competitors for beverage

sales are restaurants, shops, and street carts. There has been a significant increase in

competition in the specialty coffee beverage business and this trend is expected to

continue. In India, all most street carts that sale coffee and tea, does not got any permission

from government or council so that entry and exit of this business is very easy and require

lower investment, so such carts business sale coffee and tea at cheaper price. Starbucks might

face competition from these businesses too. Starbucks also expects that competition for suitable sites for new stores to support the

Company's planned growth will be intense. There can be no assurance that they will be able 28

to continue to secure adequate sites at acceptable rent levels. Starbucks needs to be aware of

what is going on in the competitive markets they serve. The company should push to be the

first mover in many potential cities of India in order to compete against this potential market

threat.

CHAPTER: 7

7.0 Conclusion

29

In this section I will draw conclusions. During my research I have analysed the case

company, its market, potential market, competitors, and its environment, now conclusions

based upon my research will be found from which recommendations can be made.

This research report begins by analyzing the Starbucks global expansion strategy. From this

initial analysis we were able to find out how does the Starbucks global expansion strategy

worked. PEST analysis, financial analysis and competitors’ analysis are done to find out how

the Starbucks Internal capabilities foster to success in new market segment.

Since high potentiality of speciality coffee industry in India, I choose Indian market of its

expansion. PEST analysis is done to know the attractiveness of market. Growing GDP and

steady growth rate of Indian economy are the key factors that attract every business to enter

into the market. Political liberalization make easy to entry and operate into the Indian market.

In spite of some serious drawbacks mentioned above regarding the business environment for

Starbucks in India, It could have advantage if it focuses on socio-culture aspect of Indian

business environment. Starbucks had already enter most of the emerging economy expect

India, which seems to surprise everyone including its potential competitors in India, and it is

clear from the analysis this is right time for Starbucks to try its luck now.

Of course, there will always be groups and organizations that protest against such companies

especially in emerging economy where the sentiments towards local companies are inherently

strong. Starbucks should expect these and be prepare to overcome them with skills.

CHAPTER: 8

8.0 Recommendation, Implementation and control

30

From my studies I am able to write the following recommendations for Starbucks, which, I

believe would help to prepare to enter into the emerging Indian market. Constraints and

limitations to the project will be identified and the potential costing and timing of the plan

given by analysing Gantt chart.

8.1 PriceSince Indian customers are more price sensitive, Starbucks might face great problem on

fixing the price. As we described above other competitors sale coffee in India around $0.35

per cup, but in most of the international market Starbucks sale its coffee at $3. Since local

competitors already exist in the market, Starbucks should focus on few reach people (niche

market) so that a little adjustment in price may profitable for the company.

There are many reasons that Starbucks could sale its coffee and other food at cheaper price

than other country. Generally availability of cheap labour and cheap resources in India could

make possible for Starbucks Company to sale at cooperatively lower price.

8.2 ProductsThe product strategy of Starbucks can be summarized by the company’s vision statement. As

stated on its website, the company’s vision is to “establish Starbucks as the most recognized

and respected brand in the world and to be the premier purveyor of the finest coffee in the

world”. Starbucks has strong global brand recognition which is built on a solid reputation for

premium products. The company is well known with consumers for making high quality

beverages, food and associated goods.

Starbucks could try to extend its menu selection to include drinks related to particular

cultures. For example, the Indian culture focuses more on tea than coffee, and although

Starbucks might select different types of tea. It could present similar drinks that are popular

in other cultures as well. Starbucks should research local cultures more so that it can adapt its

menu to meet the needs of its Indian customers.

India is a tea-based culture. Coffee could not be substitute of tea so easily. Rather than

Starbucks need to focus on tea and other fast food like sandwich, burger and other beverage.

Starbucks should focus on its store location so that it can be a place to hang out, to eat and

31

drink, to see and be seen.

8.3 PlaceAfter China, India could be the better opportunities for Starbucks. According to a report of

Starbucks Company, India could have greater coffee market potential to open 5000. Carefully

selection of location is must essential to enter into new market. As I described above,

emerging economy of India lead the country to industrialization. Starbucks might have to

explore early opportunities in India’s largest industrial estate like Gujarat, Maharashtra,

Haryana, Karnataka and Tamil Nadu.

8.4 PromotionStarbucks strategy is to expand its business to that market where its brand is already famous,

so less promotional activities is needed. Company should more focus on CSR rather than

advertisement. If it can formulate policies towards upliftment of Indian rural community,

sentiment towards company will be more positive. Company should open its store in highly

populated and busy area, so that store site itself becomes one of the effective advertisement

tools. Company may appoint film star or cricketer for visual advertisement of Starbucks,

since cricket and movie are very famous in India.

8.5 People The staff is the most important tool for the success of any business, if they are irritable to

customers or do not provide good service, customers may go elsewhere no matter how good

the rest of the service is.

Staff should have on-the-job training about the hospitality, quality assurance and health and

safety. It is essential that staff treats the customers with respect. For maintaining quality and

service Starbucks should hire expertise or experience person from abroad for certain time.

8.7 Process

32

It refers to the systems used to assist the organisation in delivering the service. Starbucks

might focus on waiting time for the efficient process. An efficient service will foster

consumer loyalty and confidence in the company.

8.7 Physical Evidence

Where is the service being delivered? Physical Evidence is the element of the service mix

which allows the consumer again to make judgments on the organisation. Customer usually

wants to have clean, friendly environment. Starbucks believes that its customer do not just

come in just to drink their coffee, but to come in, sit down, read, talk, listen to music, study,

and drink coffee. There are even conversation topics on the side of each cup so that when

they do sit down they have something to talk about. The customers are buying the experience

that Starbucks provides with the product. 

8.8 Budget

A formal statement of the financial resources set aside for carrying out specific activities in a

given period of time. It helps to co-ordinate the activities of the organisation. According to

official site India could have possibility of 5000 store in future. Company should formulate

strategy to establish store firstly in more potential location which I described above. To attain

this strategy resources should be allocated carefully. Annual budget template for the store is

in Appendix page.

8.9 Leadership

One of the important aspects for success of the organization is leadership. Leaders formulate

plan and motivate employees to attain this plan. Leadership also involves communicating,

inspiring and supervising - just to name three more of the main skills a leader has to have to

be successful. Starbucks should recruit country executive and area manager from the home

country so that, they could have better knowledge about their culture and environment to

implement plan.

33

8.10 Gantt Chart

Gantt charts are useful tools for planning and scheduling projects. They allow assessing how

long a project should take, determine the resources needed, and lay out the order in which

tasks need to be carried out. They are useful in managing the dependencies between tasks.

When a project is under way, Gantt charts are useful for monitoring its progress. We can

immediately see what should have been achieved at a point in time, and can therefore take

remedial action to bring the project back on course. This can be essential for the successful

and profitable implementation of the project.

The following Gantt chart shows the major activities while execution of expansion strategy.

The chart is based on joint venture business with local partner.

34

Table: Gantt Chart

Task Earliest start Length Type Dependence

A. A. Analysis of entry strategy 0 Month 0.5 month sequential -

B Selection of partner 0.5 month 0.25 month sequential AC Analysis of environment(PEST) 0 month 1 month parallel -

D Selection of store site 1 month 0.25 month sequential C

E Construction 1.25 month 2 month sequential B,D

F Requirement of employees 1.25 month 1.5 month parallel B,D

G Training 2.75 month 0.50 month sequential F

H Commencement of business 3.25 month - sequential G,E

1 2 3 4

Month

35

H

G

F

E

D

C

B

A

References:

"Starbucks Outlines International Growth Strategy; Focus on Retail Expansion and Profitability". Business Wire, [online], Available: http://findarticles.com/p/articles/mi_m0EIN/is_2004_Oct_14/ai_n6236978/[22 Mar, 2010]

 China is major potential market for Starbucks: “Starbucks Soars in China”, Asia Times online, [online], Available: http://news.starbucks.com/about+starbucks/starbucks+coffee+international/greater+china/ [22 March 2010]

“Starbucks in Japan”, Starbucks newsroom, [online], Available: http://news.starbucks.com/article_display.cfm?article_id=206[22 March 2010]

“Starbucks Singapore”, [online], Available: http://www.starbucks.com.sg/aboutus/index.html [22 March 2010]

Kotler, P., & Keller, K. L. (2006). Marketing Management, 12th e. page 30,676,669, Pearson Prentice Hall.

Agarwal, S., & Ramaswami, S. (1992). Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors. Journal of International Business Studies, p23 (1), 1-27

Isidro, I. (2004). Learning from Starbucks: 10 lessons for small businesses [Electronicversion]. Power Home Biz, [online], Available: http://www.powerhomebiz.com/vol144/starbucks.htm[22 March 2010]

Anonymous (2006). Starbucks commits $2.5 million over five years to NAACP; strategic alliance affirms Starbucks commitment to diverse organizations, Business Wire. P.1. [online], Available: http://findarticles.com/p/articles/mi_m0EIN/is_2006_May_26/ai_n26878115/[26 March 2010]

Howard S. (2002), To keep up the growth, it must go global quickly,  Business Week, [online], Available, http://www.businessweek.com/magazine/content/02_36/b3798001.htm[26 March 2010]

Porter M. E. ,(1985), Competitive advantage: Creating & sustaining superior performance, page 25, The New York free press.

Company Profile, [online], Available: http://www.barista.co.in/users/Worldwide.aspx [27 36

March 2010]

Company Profile, [online], Available: www.cafecoffeeday.com [27 March 2010]Overview of Indian Economy, [online], Available https://www.cia.gov/library/publications/the-world-factbook/geos/in.html [27 March 2010]

Kelly, P.(2009), International Business and Management, “International Marketing Strategy”, page 518, Seng Lee Press, Singapore

Competitors of Starbucks, [online], Available: http://www.hoovers.com/company/Starbucks_Corporation/rhkchi-1.html[15 March 2010]

Analysis of Starbucks, [online], Available: http://knol.google.com/k/analysis-of-starbucks#[15 March 2010]

Total words: 9,527

37

Appendix: I

Date Store #  Budget Year Premise Sq. Ft.

- Prorate Share 0.0000% Management Fee % 0% Annual Cap Increase % 0%

Annual ExpenseTenant's Pro rata Share

Annual Tenant Expense

Monthly Tenant

Expense

Annual Operating Expenses Capped Operating Expenses

HVAC $ - 0.00%

$ -

$ -

Landscaping $ - 0.00%

$ -

$ -

Security $ - 0.00%

$ -

$ -

Repair & Maintenance $ - 0.00%

$ -

$ -

Janitorial $ - 0.00%

$ -

$ -

Parking Lot $ - 0.00%

$ -

$ -

General CAM $ - 0.00%

$ -

$ -

Sub Total Capped Expenses $ - 0.00%

$ -

$ -

Management Fee $ - 0.00%

$ -

$ -

Total Capped Expenses $ - 0.00%

$ -

$ -

Uncapped Operating Expenses

Water $ - 0.00%

$ -

$ -

Trash $ 0.00% $ $

38

Starbucks Coffee CompanyFinancial Lease Administration Annual Budget Template

- - -

Electricity $ - 0.00%

$ -

$ -

Gas $ - 0.00%

$ -

$ -

Snow Removal $ - 0.00%

$ -

$ -

Total Uncapped Expenses $ - 0.00%

$ -

$ -

TOTAL ANNUAL OPERATING EXPENSES $ - 0.00%

$ -

$ -

Tax & Insurance (Uncapped Expenses)

(f) Insurance $ - 0.00%

$ -

$ -

(g) Real Estate Taxes $ - 0.00%

$ -

$ -

TOTAL INSURANCE AND TAX $ - 0.00%

$ -

$ -

(i) Total Annual Additional Rent $ - 0.00%

$ -

$ -

source: www.starbucks.com

Appendix: IIIFinancial statement (balance sheet)Assets (in Millions of US dollars)  09/2009 09/2008 09/2007 09/2006 09/2005Cash and Equivalents 600 270 281 313 174Marketable Securities 66 53 157 141 133   Accounts Receivable 271 330 288 224 191   Loans Receivable 0 0 0 0 0   Other Receivable 0 0 0 0 0Receivables 271 330 288 224 191   Raw Materials 458 0 0 82 0   Work in Progress 0 0 0 0 0   Purchased Components 91 0 0 0 0   Finished Goods 116 0 0 0 0   Other Inventories 0 693 692 555 546   Inventories Adjustments & Allowances 0 0 0 0 0Inventories 665 693 692 636 546Prepaid Expenses 147 169 149 127 71Current Deferred Income Taxes 0 0 0 0 0Other Current Assets 0 0 0 0 0Total Current Assets 2,036 1,748 1,696 1,530 1,209   Land & Improvements 58 59 56 32 14   Building & Improvements 3,581 3,581 3,265 2,546 2,016   Machinery, Furniture & Equipment 1,943 1,784 1,770 1,505 1,292   Construction in Progress 0 294 215 175 146   Other Fixed Assets 119 0 0 0 0Total Fixed Assets 5,701 5,717 5,307 4,258 3,468

39

Gross Fixed Assets 5,701 5,717 5,307 4,258 3,468Accumulated Depreciation 3,165 2,761 2,416 1,970 1,626Net Fixed Assets 2,536 2,956 2,890 2,288 1,842Intangibles 68 67 42 38 128Cost in Excess 259 267 216 161 0Non-Current Deferred Income Taxes 0 0 0 0 0Other Non-Current Assets 677 635 499 412 335Total Non-Current Assets 3,541 3,925 3,647 2,899 2,305Total Assets 5,577 5,673 5,344 4,429 3,514Liabilities (in Millions of US dollars)

09/2009 09/2008 09/2007 09/2006 09/2005Accounts Payable 267 325 391 341 221Short Term Debt 0 714 711 701 278Accrued Expenses 0 164 257 224 198Accrued Liabilities 771 466 499 438 355Deferred Revenues 389 368 297 232 175Current Deferred Income Taxes 0 0 0 0 0Other Current Liabilities 154 153 0 0 0Total Current Liabilities 1,581 2,190 2,156 1,936 1,227Long Term Debt 549 550 550 2 3Capital Lease Obligations 0 0 0 0 0Deferred Income Tax -70 -117 -37 -84 -31Other Non-Current Liabilities 401 424 337 263 194Minority Interest 0 18 17 0 0Preferred Securities of Subsidiary Trust 0 0 0 0 0Preferred Equity Outside Stock Equity 0 0 0 0 0Total Non-Current Liabilities 950 992 904 265 196Total Liabilities 2,531 3,182 3,060 2,200 1,423Stockholder's Equity  09/2009 09/2008 09/2007 09/2006 09/2005Preferred Stock Equity 0 0 0 0 0Common Stock Equity 3,046 2,491 2,284 2,229 2,091Common Par 1 1 1 1 91Additional Paid in Capital 186 39 39 39 39Cumulative Translation Adjustment 0 75 82 0 0Retained Earnings 2,793 2,402 2,189 2,151 1,939Treasury Stock 0 0 0 0 0Other Equity Adjustments 65 -26 -27 37 21Total Capitalization 3,595 3,041 2,834 2,230 2,094Total Equity 3,046 2,491 2,284 2,229 2,091Total Liabililites & Stock Equity 5,577 5,673 5,344 4,429 3,514

Source: http://zenobank.com/index.php?symbol=SBUX&page=quotesearch

40

Appendix: III

Starbucks Company Timeline

© 2010 Starbucks Coffee Company. All Rights Reserved. www.starbucks.com1971Starbucks opens first store in Seattle’s Pike Place Market.1982Howard Schultz joins Starbucks as director of retail operationsand marketing.1983Howard travels to Italy, where he’s impressed with thepopularity of espresso bars in Milan. He sees the potential todevelop a similar coffeehouse culture in Seattle.1984Howard convinces the founders of Starbucks to test thecoffeehouse concept in downtown Seattle, where the firstStarbucks® Caffè Latte is served.1987Starbucks opens first stores outside of Seattle area in Chicagoand Vancouver, B.C.1988Offers full health benefits to full- and part-time employees.1991Becomes the first privately owned U.S. company to offer astock option program that includes part-time employees.1992Completes initial public offering (IPO), with common stockbeing traded on the Nasdaq National Market under the tradingsymbol “SBUX.”1995Begins serving Frappuccino® blended beverages.

1996Joins with Pepsi-Cola North America to begin selling bottledFrappuccino® coffee drink – our first ready-to-drink beverage.Opens first store outside of North America in Japan.1997Establishes The Starbucks Foundation, benefiting localcommunities.1998Acquires Tazo, a tea company based in Portland, Ore.1999Partners with Conservation International to promoteenvironmentally responsible methods of growing coffee.2001Introduces coffee-sourcing guidelines developed inpartnership with Conservation International.Introduces the Starbucks Card.2002Starbucks enters into licensing agreements with national FairTrade organizations to sell Fair Trade Certified™ coffee in thecountries where Starbucks does business.2004Opens first Starbucks Farmer Support Center in San Jose,Costa Rica.Introduces Starbucks Coffee Master Program to provideStarbucks partners with an opportunity to learn more aboutthe world of coffee, and share their passion with customersand partners.

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2008Announces a renewed focus on customer experienceand innovation.Acquires Coffee Equipment Company and its revolutionaryClover® Brewing System.2009Launches innovative VIA™ Ready Brew coffee.Opens Farmer Support Center in Kigali, Rwanda.Becomes the world’s largest buyer of Fair Trade Certified™coffee.

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