German University in Cairo

Strategic Analysis for Starbucks

Prepared By:

1- Taghred Khattab2- Ehab Aziz3- Bassem Naguib

Class: Strategic Analysis 704Monday from 8 PM to 10 PM

Represented to: Dr. Saneya El Gallaly

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Table of Content

1- Introduction............................................................................................................3

2- Current situation.................................................................................................4

2.1 Current performance.................................................................................4

2.2 Strategic posture.........................................................................................5

2.3 Financial Analysis........................................................................................8

3- Corporate governance...................................................................................10

4- External Environment: Opportunities and Threats......................12

4.1 Michael Porter’s five forces.................................................................13

4.2 Societal Environment...............................................................................13

4.3 Task Environment......................................................................................16

4.4 External Environment (EFAS) (SWOT)...........................................18

5- Internal Environment: Strengths and Weaknesses.....................19

5.1 Corporate Structure.................................................................................19

5.2 Corporate culture.......................................................................................19

5.3 Functional strategies...............................................................................20

5.4 Internal Environment (IFAS) (SWOT).............................................24

6. SFAS, SWOT Analysis......................................................................................25

7. Reviewing mission and objective............................................................26

8. Strategic alternatives (TOWS analysis)..............................................27

9. Review strategies.............................................................................................28

9.1 Corporate Strategy...................................................................................28

9.2 Business strategy......................................................................................28

9.3 Functional Strategies..............................................................................28

10. Implementation...............................................................................................29

11. Evaluation and Control...............................................................................29

11. References..........................................................................................................30

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1- Introduction

* In 1971 Starbucks opened operations in Seattle’s Pike Place Markets

with the future aim of providing coffee to a number of restaurants and

surrounding bars. With the recruitment of Howard Schultz who led the

marketing and retail efforts of Starbucks.

* In 1982, the company took a change in direction through the views

of Schultz, who after visiting Italy tried to adapt the same principles in

order to a strong bar culture. Schultz then utilized Starbucks ability to

provide quality coffee beans and opened up a new store called Il

Giornale, which brewed coffee from these particular beans.

* In 1987, Giornale had decided to take over the assets of Starbucks

and also, further changed its name to Starbucks Corporation. By the

end of the year, Starbucks had increased the number of stores to 17

and furthered its location span by entering Chicago and Vancouver.

* In 1990, the company took further steps forward with expansion of

the Seattle headquarters and an increase in resources with the

opening of a new roasting plant. Relationships and other ventures also

took off during the early nineties as the company looked to

development organizations to further its progress.

*In 1995, the company really established its name with the opening of

the 676th store as well as increasing the products in store with the

addition of compact discs a result of a previously popular experiment

with ‘in-house’ music.

* In 1996, the company kept on stretching its reach by entering into

the market of Japan, Singapore and Hawaii. This was achieved through

joint ventures including the one formed with Sazaby Inc., which pushed

through the development of coffee houses in Japan.

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*By the year 2000, things had progressed so far that 3,300 stores

were already opened, the company had ventured into countries

ranging from England to Australia & China.

* By last quarter of 2008, total international stores became 5113

store & 11567store in United States.

2- Current situation

The current international situation for Starbucks seems to be an

emerging part of their business and the reorganization of this is proved

by their aim to become a leading global company through making a

difference in people’s lives all around the world. This goal is quite close

to being achieved as proved the Starbucks current locations in

international markets and the successfulness of these ventures. The

current countries in which Starbucks are located in are: Australia,

Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia,

New Zealand, Oman, Peoples Republic of China, Philippines, Qatar,

Saudi Arabia, Singapore, South Korea, Switzerland, Taiwan, Thailand,

United Arab Emirates, Egypt, United Kingdom, and the United States.

2.1 Current performance

Overall, the aim of becoming a worldwide global brand seems to be

working in favor of the company and is helping it to attract the

attention of many major companies who would like to share a

partnership. This is all positive news for the company because it

provides a strong basis for future development of international

markets, which further strengthens the mission to become one of the

leading specialty coffee retailers in the world.

However, the net revenues increased 3 percent to $2.5 billion for the

fourth quarter of 2008, compared to $2.4 billion for the fourth quarter

of 2007. For the 13-week period ended September 28, 2008, Starbucks

reported net income of $5.4 million, which included $105.1 million of

restructuring charges and other transformation strategy costs. Net

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income was $158.5 million for the same period a year ago. The

company actions announced in July of 2008 to close approximately 600

company-operated stores in the U.S. and 61 company-operated stores

in Australia, and reduce approximately 1,000 open and filled positions

within its leadership structure and non-store organization.

2.2 Strategic posture

1- mission

“To inspire and nurture the human spirit— one person, one cup,

and one neighborhood at a time”

“The mission of Starbucks is to establish Starbucks as the

premier purveyor of the finest coffee in the world while

maintaining our uncompromising principles while we grow”

None of this success would have been possible without a set of

goals that the company aimed to achieve and a set of principles,

which governed the decision making process. The six principles

of Starbucks are stated as:

1- Provide a great work environment and treat each other with

respect and dignity.

2- Embrace diversity as an essential component in the way we

do business.

3- Apply the highest standards of excellence to the purchasing.

4- Roasting and fresh delivery of our coffee.

5- Develop enthusiastically satisfied customers all of the time.

6- Contribute positively to our communities and our

environment, and recognize that profitability is essential to

our future success.

Application of these principles can be used as a guideline for

all employees from managers to workers to aim to achieve

the company’s goals, while maintaining a certain type of

standard.

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This mission statement along with the set of guidelines provides

a focus for employees as they make strategic decisions. It not

only supports the employees, but supports the customers as

well, making a note that they should be satisfied all of the time.

The mission shows alignment with the vision by stating how the

company plans to reach the broad goals set by the vision

statement. Another supporting sentence in the mission

statement is that the “company applies the highest standards of

excellence to the purchasing, roasting and fresh delivery of its

coffee.” This statement supports the idea that Starbucks uses

the best available resources to give it a recognized and

respected name.

2- Objectives & Strategies:

Here are the following objectives of Starbucks:

Our Coffee

It has always been, and will always be, about quality. We’re

passionate about ethically sourcing the finest coffee beans,

roasting them with great care, and improving the lives of people

who grow them. We care deeply about all of this; our work is

never done.

Our Partners

We’re called partners, because it’s not just a job, it’s our passion.

Together, we embrace diversity to create a place where each of

us can be ourselves. We always treat each other with respect

and dignity. And we hold each other to that standard.

Our Customers

When we are fully engaged, we connect with, laugh with, and

uplift the lives of our customers— even if just for a few moments.

Sure, it starts with the promise of a perfectly made beverage,

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but our work goes far beyond that. It’s really about human

connection.

Our Stores

When our customers feel this sense of belonging, our stores

become a haven, a break from the worries outside, a place

where you can meet with friends. It’s about enjoyment at the

speed of life—sometimes slow and savored, sometimes faster.

Always full of humanity.

Our Neighborhood

Every store is part of a community, and we take our

responsibility to be good neighbors seriously. We want to be

invited in wherever we do business. We can be a force for

positive action— bringing together our partners, customers, and

the community to contribute every day. Now we see that our

responsibility—and our potential for good—is even larger. The

world is looking to Starbucks to set the new standard, yet again.

We will lead.

Our Shareholders

We know that as we deliver in each of these areas, we enjoy the

kind of success that rewards our shareholders. We are fully

accountable to get each of these elements right so that

Starbucks—and everyone it touches—can endure and thrive.

From all what mentioned above that Starbucks is aiming to

success through quality of product, diversify in business and

place, to satisfy customers and shareholders, through pleasant

and nice existence nearly to everyone.

2.3 Financial Analysis

The general financial performance for Starbucks in 2008 was declining

from the previous years dramatically. The following analysis will show

this fact.

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Investment Returns % Company Industry

Return On Equity 12.6 25.8

Return On Assets 5.6 13.2

Both the ROE and ROA are lower than the industry’s average, which

means that the company is not using both the equity and their assets

properly to increase their revenue.

Profit Margins % Company Industry

Gross Margin 16 27

Pre-Tax Margin 4.4 13.2

Net Profit Margin 3.03 8.5

Starbucks margins are lower also that the industry’s average,

especially in 2008 where the net profit margin reduced to 3.03 from

6.3 in 2007.

Financial Condition Company Industry

Debt/Equity Ratio 0.40 0.46

Current Ratio 0.80 1

Quick Ratio 0.48 0.7

Starbucks generally manages their debs and liabilities wisely, and this

considers a financial strength for the company.

Year 2008 2007 2006 2005

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Sales 10,383,000 9,411,497 7,786,942 6,369,300

Net Income 315,500 672,638 564,259  494,467

Growth Rate

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

2005 2006 2007 2008

Years

Val

ue

US

D

0100,000200,000300,000400,000500,000600,000700,000800,000

Sales

Net Income

Although the total sales was increased in the last 4 years, the net

income was reduced, especially in 2008 when it reached almost half

2007.

Management Efficiency Company Industry

Inventory Turnover 12.6 20.6

Asset Turnover 1.83 1.7

3- Corporate governance

Board of directors

As part of Starbucks mission they are committed to maintain their

uncompromising principles while they grow. In this regard, their Board

of Directors has adopted governance principles and committee

charters to lead Starbucks governance practices. Currently, the board

has 9 directors, a substantial majority of whom meet all of the

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independence requirements of NASDAQ® and the U.S. Securities and

Exchange Commission. Of the nine members of Starbucks board, one

is Latino, two are African American (one of which is female), and one

other female also serves on the board. Starbucks president and CEO

Howard Schultz chair the board.

In Starbucks there are well-defined criteria for the selection of new

board members, foremost being a clear demonstration of their own

personal integrity and ethics. Board diversity is sought in terms of

members’ personal and professional backgrounds, gender, race,

ethnicity or other differentiating characteristics, enabling a wider range

of opinions and perspectives to be considered. This criterias of

selection affected the company in a very good way that gave it the

opportunity to succeed in the international market. That the diversified

background, education, culture and gender in the board was one of the

greatest Starbucks strong points.

There are three committees of the board are comprised of independent

directors and have specific charters: Audit and Compliance,

Compensation and Management Development and Nominating and

Corporate Governance.

In November 2007, the board amended the company’s bylaws to

include majority voting to allow shareholders to play a more

meaningful role in the election of directors. Director nominees must

receive more “for” than “against” votes to be elected in an

uncontested election. Additionally, the term of a nominee who does not

receive a majority of the votes cast will end on the earliest of either:

(1) 90 days after the date election results are certified; (2) the date the

director resigns; or (3) the date the board of directors fills the position.

This change demonstrates Starbucks ongoing commitment to strong

corporate governance practices.

Shareholders and partners (employees) can provide recommendations

and feedback to the board through the Business Conduct Helpline and

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the Audit line. In addition, written correspondence can be sent to the

board, an individual director or to any of Starbucks independent board

committees.

Committee charters, governance principles, director nominations

policy (including criteria for board membership) and profiles on each

board member are available in the corporate governance section of

Starbucks.com.

Starbucks formed a Policy Governance Council in fiscal 2006 to

oversee and approve governance tools at the global enterprise level,

and to ensure they are well-defined, consistent with each other,

current, stored for easy retrieval, and effectively communicated to

partners. The Council is comprised of company leaders who represent

multiple business units and functions, and is supported by Starbucks

Policy Office and staff.

Starbucks stakeholders include partners (employees), customers,

suppliers, farmers, shareholders, governments, community members,

environmental groups, activists and many others. The company

engaged them to be able to understand their concerns and gain their

input on topics of mutual importance.

4- External Environment: Opportunities and

Threats

Starbucks international operation was one of the major aspects of their

success. , in the mid 1990s, with the market reaching saturation,

Starbucks could no longer depend on the U.S. market for growth. To

maintain its growth rates and to boost revenues, Starbucks had to

venture abroad. Starbucks international presence is now in more than

25 countries and the United States of America. This presence is formed

in three modes in entry that are Joint venture, licensing and wholly

owned

subsidiaries. This became a burden on the mother company in a later

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stage. That those types of entry moods need a lot of training,

supervising, management assistance and technology transfer for the

partner. This is along with inability to engage in global strategic

coordination.

However, the success of Starbucks is not only to its aggressive

expansion but also to its product innovation. Starbucks came out with

new products to attract customers on different periods.

Also diversification was one of the factors that Starbucks started to

apply even on a small initiated base. That along with serving coffee,

Starbucks also sold merchandise. In 1995, it started selling CDs of its

famous in-house music program. It also entered into alliances with

various players such as Canadian Airlines, United Air Lines, Starwood

Hotels, and Barnes & Noble, Inc., to serve Starbucks coffee.

4.1 Michael Porter’s five forces

Michael Porter defines five forces impacting a firm's competitiveness—

threat of substitutes, threat of new entrants in the industry, bargaining

power of suppliers, bargaining power of customers, and the intensity of

competition within the industry. A firm's strategic decisions to respond

to these five forces are a source of risk also.

The company is facing a real threat of substitution from many other

companies that producing the same product that is satisfying the same

need. This is in its domestic market and even in the international

market specially Europe and Middle East.

Also Starbucks is facing a real problem of rival competition due to its

uncompetitive price all over the world and even in its domestic market.

Also the taste of Coffee had been judged by customers as an artificial

taste especially in Japan.

Suppliers bargaining power is really represent a threat for Starbucks.

That they decided to deal with a 51% women or minority owned

suppliers. Also they are not dealing with suppliers who don’t follow the

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same environmental ethics that are for Starbucks. This may lead them

to lose a good opportunity or deal with a supplier that they will not

deal with him. Also dealing with small suppliers instead of dealing with

limited number of big power full suppliers is not giving them real good

deals for facilities and prices.

4.2 Societal Environment

Economics

Economic factors are an important aspects that concern the nature

and direction of the economy in which a firm operates.

Starbucks also faced criticism from Non Governmental Organizations

(NGOs) that urged the company to acquire certified coffee beans,

ensuring that those coffee beans were grown and marketed under

certain

economic and social conditions.

Furthermore, Starbucks faced problems due to economic recession in

countries such as Switzerland, Germany, and Japan in the early 2000s,

where it experienced declining sales and revenues.

Moreover, a real expectation of huge recession during the next year

due to the worldwide financial crisis may affect the company’s results

badly.

Technological

Starbucks is continuously searching for ways to better a customers’

experience. With the introduction of the Starbucks Card for example,

the Company has created the opportunity to improve customer

service, shorten lines and make a customer’s visit at Starbucks quicker

and more convenient. Most if not all Starbucks location has WI-FI for

consumer needs.

Political/Legal

1- Increasing tensions between the United States and the rest of the

world, the business environment, especially in the Middle East and

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Southeast Asia, was becoming increasingly volatile. After U.S.

declaration of war on Iraq in early 2003 matters became worse for the

company. This created serious problems for Starbucks. In July 2002,

Arab students called for a boycott of American goods and services, due

to the alleged close relationship between the United States and Israel.

The boycott targeted U.S. companies including Starbucks, Burger King,

Coca-Cola and Estee Lauder

2- In addition to these incidents, Starbucks topped the list of companies

to be boycotted due to Schultz's alleged closeness to the Jewish

community. Till now in the Arab countries & Middle East a lot of rumors

that Starbucks is sponsoring the Jewish community against Palestinian

crises. Due to increasing security threats, Starbucks closed down its six

stores in Israel.

3- Starbucks had two class action suits pending since 2001. The lawsuits

entitled Carr vs. Starbucks and Sheilds vs. Starbucks are challenging the

status of Starbucks California store managers and assistant managers as

exempt employees under California wage and hour laws. Starbuck’s is

denying all liabilities in these cases, however; the company has agreed to

the settlement in order to take care of all of the plaintiffs’ claims without

having to get involved in any protracted litigation.

4- Starbucks only imports all their coffee beans, so possible threats could

include a change in import laws. A change in the status quo as far as

imports go could greatly affect numerous areas of production for the

company. For example, if it costs more to import or the process is made

more difficult the result could ultimately be a change in price, which would

affect the level of consumption for Starbucks coffees.

Social/Cultural

Environmental Mission Statement

(Starbucks is committed to a role of environmental leadership in all facets

of our business)

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As a result of Starbucks closely following their objectives, the company

has installed a list of principles that further outline the company’s

willingness to make sure that its affect on the environment is as positive

as possible. These principles are stated as:

1- Understanding of environmental issues.

2- Sharing information with our partners.

3- Developing innovative and flexible solutions to bring

about change.

4- Striving to buy, sell and use environmentally friendly

products.

5- Recognizing that fiscal responsibility is essential to our

environmental future.

6- Instilling environmental responsibility as a corporate

value.

7- Measuring and monitoring our progress for each project,

and encouraging all partners to share in our mission.

Those can only be seen as a positive for the image of the

company and shows that they are willing to utilize their

resources in order to more than satisfy requirements.

4.3 Task Environment

Not only this but also, Starbucks organizing activities such as

neighborhood clean-ups and walk-a-thons. Many examples are

available on the web site of the company.

Policies that also have been implemented are the buying policies,

which only allow the company to purchase from those other businesses

(suppliers) who follow the same environmental strategy as Starbucks.

This may push the company to lose an opportunity of good deal,

because the supplier doesn’t follow the company environmental

policies.

Finally, to integrate these policies to new employees, Starbucks has

employed the services of a few partners which congregate together to

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create a “Green Team,” which installs the environmental views into

trainees as well as coming up with inventive ways of helping the

environment.

Summary of External factors TO

However, it was found that the success of Starbucks was due to its

profitable domestic operations. It was reported that most of Starbucks'

international operations were running into losses. In May 2003,

Starbucks' Japanese operations reported a loss of $3.9 million (Japan

constituted the largest market for the company outside the United

States), and the company also performed badly in Europe and the

Middle East. Analysis pointed out that Starbucks' international

operations were not as well planned as its U.S. operations. It was also

observed that the volatile international business environment made it

difficult for the company to effectively manage its international

operations.

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4.4 External Environment (EFAS) (SWOT)

 External Factors

Weigh

t

Ratin

g

Weighte

d Score

SR Opportunities      

O1 New Markets with low investments 0.1 3 0.3

O2 Coffee Market Growing Worldwide 0.1 4 0.4

O3Product range diversification to more food and non-food

items0.12 2 0.24

O4 New distribution channels (delivery) 0.08 3 0.24

  Threats      

T1 Boycotting for Political reasons (Middle East and Arab) 0.08 4 0.32

T2 Financial Crises and Recession 0.15 4 0.6

T3 Increase in Domestic competition 0.1 4 0.4

T4 Volatile coffee and dairy products 0.1 4 0.4

T5 US market saturation 0.08 4 0.32

T6Consumer trends toward more healthy ways and away

form caffeine0.09 3 0.27

 Total 1   3.49

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5- Internal Environment: Strengths and

Weaknesses

5.1 Corporate Structure

Starbuck has no formal organization chart and does not work with

hierarchy structure. It consists of to main departments, functional

department consists of marketing, supply chain, operations, finance

and human resources, and cross functional teams, consisting of local

store marketing and marketing campaigns. The decision making

process in Starbucks is bottom – up process, where the employees are

empowered even to take decisions without referring back to the

management. There is a conflict in the corporate structure where some

employees are reporting to two different divisions which in some cases

causing confusion and over lapping.

5.2 Corporate culture

The Chairman of Starbucks, Schultz decided to treat employees as

family, and called them partners. Both full time and part time

employees could benefit from training and health insurance. Starbucks

paid some more salaries than competitors to gain highly qualified

employees.

Starbucks relied on its baristas and other frontline staff to a great

extent in creating the ‘Starbucks Experience' which differentiated it

from competitors.

Employees had option to stock chare according to their base salaries.

Also Starbucks had shared values with their employees who made

them proud to work in such successful company, and this created good

culture. Schultz decided also to be open and honest with his

employees, and let them share in the decision making process. He

gave extensive training to employees especially barista employees to

give careful attention to customers.

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Environment was important to Starbucks. Using this concept Starbucks

gave good attention to their suppliers by helping them technically and

financially as part of their corporate social responsibility. Also it

encouraged all partners to share in the company’s mission. Starbucks

has deep tacit knowledge, which is difficult to be imitated by

competition.

5.3 Functional strategies

5.3.1 Marketing

The main marketing strategy and position for Starbucks is for

customers to consider it as their place after home and work, this will

guarantee customers visiting the shops several times. However it also

customizes its positioning for each store individually according to the

specific location it is in. Another important part of Starbucks’

positioning over competition is that they are environmentally friendly.

Starbucks does not generally offer promotional prices on its products.

It has a reputation for having pricey drinks; furthermore, Starbucks

brand is too expensive. The company mainly depends on the brand for

their high revenues, which could be risky from competition. However it

seems to be the market leader when it comes to new products and

ideas.

Starbucks has found more success advertising on a local level rather

than to the nation as a whole. The Company advertises a lot through

print mediums, as Starbucks’ target market tends to be educated

people who do more reading than the average person. In 2005,

Starbucks spent $87.7 million on advertising, or 1.4% of revenues.

Starbucks also market itself as environmentally friendly and focus on

its corporate social responsibility, one example is buying Ethos-Water

Company and they also plan to donate $ 10 million to help countries

under developed lacking clean water.

5.3.2 R&D

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The R&D role in Starbucks is to make a R&D mix and mainly consists of

the following activities:

Coffee Science

New Technology

Equipment Technology

Product Development

Menu Development

Coffee Quality Assurance

Sensory Science

The introduction of the Starbucks Card for example, Starbucks has

created the opportunity to improve customer service, shorten lines and

make a customer’s visit at Starbucks quicker and more convenient

Starbucks is continuously searching for ways to better a customers’

experience. The company spent 7.2 Million in 2008 for new

technologies related to food and equipment.

5.3.3 Operations and logistics

The main operation for Starbucks divided into local operation in USA

and international operation. Starbucks depended mainly on their

employees to manage operation, that’s why they focused on training

employees as they are the main asset in the company. They are

managing all stores in USA, however, they are in the international

operation sometimes manage their store, or give licenses, or get into

joint ventures with existing companies. But they focus on their

operation on the quality of their coffee.

Starbucks deals with international small suppliers. Starbucks made

good deals with their suppliers to supply coffee with fixed prices rather

than using the Fair Trade Coffee.

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They mainly use non-smoking restrictions in their stores, however in

some countries because of culture conflicts they had to have either

smoking rooms or smoke areas in the air.

One of the main advantages Starbucks has is the accumulative

experience of their employees in operation, this is due to the low turn

over they have and their focus on employee satisfaction.

5.3.4 Human Resources

Starbucks paid considerable attention to the kind of people it recruited.

So the company hired people for qualities like adaptability,

dependability and the ability to work in a team. Starbucks was one of

the few retail companies to invest considerably in employee training

and provide comprehensive training to all classes of employees,

including part-timers

Company depends on their personnel in their high revenue, which is

very risky as if they lost some of the key persons. Early 2000s, the

company began to show signs that its generous policies and high

human resource costs were reflecting on its financial strength.

Although the company did not reveal the amount it spent on

employees, it said that it spent more on them than it did on advertising

While the industry turnover rate is about 200 percent, Starbucks

maintains a turnover rate of only 60 percent. Due to this low turnover,

Starbucks has lowered their training time and costs. Furthermore, 82%

of the partners rated being “very satisfied” and 15% as “satisfied” with

their jobs when asked by outside audit agencies.

5.3.5 Information System

Starbucks is following this major trend of moving towards multimedia

Direct Marketing Solutions and Web-based models. Customers visit its

web site to buy coffee products and gifts, and to learn more about the

art of roasting and brewing coffee. The site also offers services such as

the Starbucks “Taste Matcher” tool, which interactively recommends

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specifics coffee roasts and blends bases on customer’s preferences.

Moreover in late November 2001 Starbucks Debit card was introduced

in US. Its introduction has increased customer loyalty as well as

attracted new customers to Starbucks stores.

Most if not all Starbucks locations have WI-FI for consumer needs. The

MIS department affects Starbucks partners whenever they open a store

cash register, use computer software or send voice mail messages.

The IS department in Starbucks focuses mainly on:

Business Applications Development

Production Services

Retail Business Systems

Strategic Architecture

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5.4 Internal Environment (IFAS) (SWOT)

 Internal Factors Weight

Ratin

g

Weighted

Score

SR Strengths      

S1 High Brand Equity 0.12 5 0.6

S2 Satisfied Employees 0.1 4 0.4

S3 Exclusive coffee products 0.08 4 0.32

S4 Economies of scale in purchasing 0.1 4 0.4

S5 Widespread and consistency 0.09 4 0.36

S6 Strong financial foundation 0.1 3 0.3

  Weaknesses      

W1 High prices 0.12 1 0.12

W2 Over dependency on coffee and coffee related products 0.1 3 0.3

W3 Lack of internal focus (too much focus on Expansion) 0.11 3 0.33

W4 Cross Functional management 0.08 3 0.24

 Total 1   3.37

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6. SFAS, SWOT Analysis

SR SFASWeigh

t

Ratin

g

Weighte

d Score

Duration

Lon

gIntermediate

Shor

t

S1 High Brand Equity 0.09 5 0.45 X    

S2 Satisfied Employees 0.07 4 0.28 X    

S4 Economies of scale in purchasing 0.08 4 0.32   X  

W1 High prices 0.09 2 0.18   X  

W2Over dependency on coffee and coffee related

products0.09 3 0.27     X

W3Lack of internal focus (too much focus on

expansion)0.09 4 0.36     X

O1 New market with low investment 0.08 4 0.32   X  

O2 Coffee Market growing worldwide 0.07 4 0.28   X  

O3Product range diversification to food and non food

items0.09 2 0.18     X

T2 Financial Crises and Recession 0.09 4 0.36     X

T3 Increase in Domestic competition 0.08 4 0.32   X  

T4 Volatile coffee and dairy products 0.08 4 0.32   X  

  Total 1   3.19      

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7. Reviewing mission and objective

Mission Statement: Starbucks should keep their mission statement as it

reflects the current situation as well, expect for changing the product

scope to include products more than the coffee for good diversification.

Objectives: The Company can keep the same current objects as it

serves the current situation of the company. Just one object should be

added which is:

Invest in other product for either related or unrelated business to

maintain the success.

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8. Strategic alternatives (TOWS analysis)

Internal factorsStrengths

S1 High Brand Equity

S2 Satisfied employees

S4 Economies of scale in purchasing

Weaknesses

W1 High prices

W2 Over dependency on coffee and

coffee related products

W3 Lack of internal focus (too much

focus on expansion)

External Factors

Opportunities

O1 New market with low

investment

O2 Coffee Market

growing worldwide

O3 Product range

diversification to food

and non food items

1- Grow vertically to include

other low cost countries

using the good brand.

2- Use the experienced

employees to diversify in

other related businesses.

1- Diversification to related

businesses to overcome

the dependency on the

coffee and increase product

range.

2- Reduce costs to reduce

prices in low investment

markets and get benefits

from the growing markets.

Threats

T2 Financial Crises and

Recession

T3 Increase in Domestic

competition

T4 Volatile coffee and

dairy products

1- Differentiate using the high

brand to prevent domestic

competition.

2- Make backward vertical

integration using the

economies of scale to avoid

volatile of coffee and dairy

1- Reduce costs to reduce

price in order to survive in

the current financial crises.

2- Depend on international

alliances in the

international stores to

focus on the domestic

market to avoid

competition, as the

domestic market is the

main source of revenue.

9. Review strategies

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9.1 Corporate Strategy

The corporate strategy should continue in Retrenchment as they

started in July 2008 close stores to reach 600 by the end of 2009.

One more strategy should be added to Diversify in related business to

secure the company, as they depend only on coffee products.

9.2 Business strategy

Domestic Business Unit: Should focus on more differentiation to face

the hard local competition.

International Business Unit: Should focus on reducing costs to reduce

prices; this will help in entering new low cost markets and gain more

profits. Also continue with alliances in countries to reduce

management focus and concentrate more on the Domestic Market.

9.3 Functional Strategies

Marketing

Starbuck should continue in their existing marketing strategy for

promotion and advertising.

Starbuck should make strategy of good price reduction strategy in

order to enter new markets and maintain current customers.

Research and Development

Starbuck can continue in their R&D strategy by being the Technological

leader in the coffee retail business.

Operation Strategy

Starbuck can continue in the current strategy for depending on

employees in management and to make good deals with suppliers to

reduce costs.

Human Resources

The company should continue in developing and motivating employees

as they are their best assets.

Information System

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The company should continue in developing their Information System

to help the company increasing profitability.

10. Implementation

The company can implement the above strategies by:

o Use the best of their Economies of scale to reduce costs.

o Start new independent Business Unit for New products, with

decentralization for products-group structure.

o They should reduce cross functional tasks to reduce confusion

between employees and increase efficiency.

o Depend on the outsiders of their board to get potential new

investments in new businesses.

11. Evaluation and Control

Starbucks should evaluate their performance quarterly in 2009 to

avoid any accumulative losses and to take quick corrective actions.

The best evaluation method for Starbucks will be financial evaluation

by measuring the following:

1- ROI for any new investment they made and for the old

investments as well.

2- Net profit for each store to separate between profitable and non

profitable stores.

3- Net profit for each country to separate between profitable and

non profitable countries.

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11. References

1- www.starbucks.com

2- Starbucks Annual Report.

3- http://company.monster.com/starbucks/about/structure.htm#mis

4- www.collegeresearch.us/show_essay/5779.html

5- www.businesspme.com/uk/articles/advertising/99/ Starbucks '- marketing -

strategy .html

6- Seong-Min, Kim 2002. Starbuck Coffee Corporations, University

of Haway.

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