Starbucks Corporation

Starbucks Corporation

Company Profile

Publication Date: 15 Apr 2011

www.datamonitor.com

Asia PacificAmericasEurope, Middle East & AfricaLevel 46245 5th Avenue119 Farringdon Road2 Park Street4th FloorLondonSydney, NSW 2000New York, NY 10016EC1R 3DAAustraliaUSAUnited Kingdom

t: +61 2 8705 6900t: +1 212 686 7400t: +44 20 7551 9000f: +61 2 8088 7405f: +1 212 686 2626f: +44 20 7551 9090e: [email protected]: [email protected]: [email protected]

ABOUT DATAMONITOR

Datamonitor is a leading business information company specializing in industry analysis.

Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiasedexpert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive,Energy, Consumer Markets, and Financial Services.

The company also advises clients on the impact that new technology and eCommerce will have ontheir businesses. Datamonitor maintains its headquarters in London, and regional offices in NewYork, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies.

Datamonitor's premium reports are based on primary research with industry panels and consumers.We gather information on market segmentation, market growth and pricing, competitors and products.Our experts then interpret this data to produce detailed forecasts and actionable recommendations,helping you create new business opportunities and ideas.

Our series of company, industry and country profiles complements our premium products, providingtop-level information on 10,000 companies, 2,500 industries and 50 countries. While they do notcontain the highly detailed breakdowns found in premium reports, profiles give you the most importantqualitative and quantitative summary information you need - including predictions and forecasts.

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic,mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc.

The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that thefindings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faithfrom both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitorcan accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

Starbucks Corporation © Datamonitor


TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts...............................................................................................................4

Business Description...........................................................................................5

History...................................................................................................................7

Key Employees...................................................................................................10

Key Employee Biographies................................................................................11

Major Products and Services............................................................................18

Revenue Analysis...............................................................................................19

SWOT Analysis...................................................................................................20

Top Competitors.................................................................................................28

Company View.....................................................................................................29

Locations and Subsidiaries...............................................................................33


Starbucks CorporationTABLE OF CONTENTS

COMPANY OVERVIEW

Starbucks Corporation (Starbucks or ‘’the company’’) is a premier roaster and retailer of specialtycoffee.The company operates in the US, Asia Pacific, the Europe Middle East Africa (EMEA) region,and Latin America. Starbucks is headquartered in Seattle, Washington and employs 137,000 people.

The company recorded revenues of $10,707.4 million during the financial year ended September2010* (FY2010), an increase of 9.5% over FY2009.The operating profit of the company was $1,419.4million in FY2010 compared to an operating profit of $562 million in FY2009. The net profit was$945.6 million in FY2010 compared to a net profit of $390.8 million in FY2009.

*Starbucks’s financial year ends on the Sunday closest to September 30. The financial year endedOctober 3, 2010 was a 53-week period whereas the financial year ended September 27, 2009 wasa 52-week period.

KEY FACTS

Starbucks CorporationHead Office2401 Utah Avenue SouthSeattleWashington 98134USA

1 206 447 1575Phone

Fax

http://www.starbucks.com/Web Address

10,707.4Revenue / turnover(USD Mn)

SeptemberFinancial Year End

137,000Employees

SBUXNASDAQ NationalMarket Ticker


Starbucks CorporationCompany Overview

BUSINESS DESCRIPTION

Starbucks Corporation (Starbucks or ‘’the company’’) specializes in coffee and other relatedbeverages. The company sells coffee, Italian-style espresso beverages, cold blended beveragesand complementary food items, a selection of premium teas, and coffee-related accessories andequipment. Some of the key brands under which the company offers its products include Starbucks,Tazo Tea, Seattle’s Best Coffee and Starbucks VIA Ready Brew. At the end of FY2010, Starbuckshad 8,833 company-operated stores and 8,025 licensed retail stores worldwide. The company hasoperations in more than 50 countries.

Starbucks operates through four business segments: the US, international, global consumer productsgroup (CPG) and other.

The US and international segments both include company-operated retail stores and certaincomponents of specialty operations. Specialty operations within the US include licensed retail stores.These retail stores primarily sell coffee and other beverages, complementary food, whole beancoffees, and a limited selection of merchandise.

The US business segment had 6,707 company-operated stores and 4,424 licensed retail stores atthe end of FY2010.

The international specialty operations primarily comprise retail store licensing operations in about40 countries and foodservice accounts in Canada and the UK. As of October 3, 2010, the internationalsegment had 2,126 company-operated stores and 3,601 licensed retail stores. The largest marketswithin the international segment based on number of retail stores, currently are Canada, Japan andthe UK.

The CPG segment includes packaged coffee and tea, Starbucks VIA Ready Brew as well as otherbranded products sold worldwide through channels such as grocery stores, warehouse clubs,convenience stores and US foodservice accounts.The segment operates primarily through licensingarrangements and a joint venture with consumer products business partner. For more than ten years,Starbucks through its licensing relationships with Kraft Foods Global (Kraft) sold a selection ofStarbucks and Seattle’s Best Coffee branded packaged coffees and Tazo teas in grocery andwarehouse club stores throughout the US, and to grocery stores in Canada, the UK and otherEuropean countries. Kraft managed the distribution, marketing, advertising and promotion of theseproducts. However, in the first quarter of FY2011, Starbucks discontinued its licensing relationshipswith Kraft.

Starbucks has restructured its operating segments in the fourth quarter of FY2010. The companybegan reporting Seattle’s Best Coffee as a separate operating segment and combined it with DigitalVentures and unallocated corporate expenses within the “other” segment. The financial informationfor Seattle’s Best Coffee was previously reported within the US, international, and CPG segments.


Starbucks CorporationBusiness Description

The company sources green coffee beans from several coffee producing regions around the world.Starbucks also operates Farmer Support Centers in Costa Rica and Rwanda. These centers workwith coffee farming communities to promote best practices in coffee production that in turn help toimprove both coffee quality and yields.

Starbucks purchases a significant amount of dairy products, mainly fluid milk.The company purchaseshigh volumes of dairy products in the US, Canada and the UK. Products other than whole beancoffees and coffee beverages sold at Starbucks retail stores are sourced through a number ofdifferent channels. Other beverage ingredients including tea leaves and ready-to-drink beveragesare purchased from specialty suppliers. Food products such as fresh pastries, breakfast sandwichesand lunch items are procured from national, regional and local suppliers. Starbucks also purchasesa broad range of paper and plastic products, such as cups and cutlery.


Starbucks CorporationBusiness Description

HISTORY

Starbucks Corporation (Starbucks or ‘’the company’’) was founded in early 1970s; it opened its firstlocation in Seattle's Pike Place in 1971. Starbucks began providing coffee to restaurants and espressobars in 1982.The company introduced Starbucks Christmas Blend in 1984.With the backing of localinvestors, Giornale acquired Starbucks's assets and changed its name to Starbucks Corporation in1987. In the same year, the company also opened its stores in Chicago and Vancouver, Canada.

Starbucks became the first privately owned US company to offer a stock option program that includedpart-time employees, in 1991. In the following year, it completed initial public offering (IPO), withcommon stock being traded on the Nasdaq National Market under the trading symbol SBUX.

Starbucks began selling compact discs in 1995. In the same year, the company opened a roastingfacility in York, Pennsylvania and formed an alliance with Canadian bookstore Chapters. Starbuckspartnered with Pepsi-Cola North America to sell bottled Frappuccino coffee drink in 1996 and laterin the same year, the company opened its first store in Japan.

In 1997, Starbucks formed an alliance with eight companies expanding its book offering through theAll Books for Children book drive. In the same year, the company introduced Starbucks Barista homeespresso machine.

The company signed a licensing agreement with Kraft Foods to extend the Starbucks brand intogrocery channels across the US in 1998. Later in the year, the company acquired Tazo, a teacompany based in Portland, Oregon. The company also launched its website www.starbucks.comin 1998.

The company acquired Hear Music, a San Francisco based music company, in 1999. In the sameyear, Starbucks partnered with Conservation International in order to promote sustainable coffeegrowing practices.

Starbucks established licensing agreement with TransFair USA in 2000 for the sale of Fairtradecertified coffee in the US and Canadian markets.

The company introduced the Starbucks Card, a stored-value card for customers to use and reload,in 2001. In the following year, the company introduced Starbucks DoubleShot espresso drink in theready-to-drink category. Later in 2002, the company launched its high-speed wireless internet servicebranded TMobile HotSpot in US stores.

During 2003, Starbucks enhanced its portfolio with the acquisition of Seattle Coffee. This includedthe Seattle's Best Coffee and Torrefazione Italia Coffee brands. The company continued its globalexpansion in early 2004 through the opening of the first Starbucks store in Paris. The company alsoopened Starbucks Coffee Agronomy in San Jose, Costa Rica in the same year. Further in 2004,Starbucks Coffee and Jim Beam Brands, a unit of Fortune Brands, entered into a development and


Starbucks CorporationHistory

distribution agreement to develop, manufacture and market a Starbucks-branded coffee liqueurproduct in the US. Later in the year, Starbucks signed a licensing agreement to open Seattle's BestCoffee cafes in more than 400 existing Borders Books & Music stores in the continental US andAlaska.

Starbucks acquired Ethos Water, a privately held bottled water company based in Santa Monica,California, in 2005. In the following year, Starbucks acquired full ownership of Coffee Partners Hawaii,the joint-venture company that operates its retail stores in Hawaii. The company also acquired 60Starbucks retail stores in Beijing and Tianjin, China in 2006 from H&Q Asia Pacific and othershareholders equity ownership of High Grown Investment Group.

The company and its European joint venture partner, Marinopoulos Holding SARL, opened firstStarbucks store in Bucharest in 2007. In the same year, Starbucks launched its new ready-to-drinkcoffee beverage Starbucks Discoveries in South Korea.The company also formed a music partnershipwith Apple in late 2007.

Starbucks acquired The Coffee Equipment Company and its proprietary Clover brewing system in2008. In the same year, Starbucks was ordered to pay California baristas more than $100 millionfor violation of the California Labor Code (in connection with a class-action lawsuit filed in 2004).During mid 2008, Starbucks and SSP, one of the leading companies in beverage and foodconcessions for travelers in Europe, collaborated to form a strategic licensing partnership to openmore than 150 Starbucks stores in prime travel channels in key European markets by FY2011.

In 2009, a class-action lawsuit was filed against Starbucks by an employee for laptop data breach.Subsequently, Starbucks and Kraft Foods announced plans to launch packaged Starbucks coffeeproducts in France and Germany markets. Later in the year, the company and MSNBC formed amarketing relationship to highlight Starbucks coffee products on “Morning Joe,” the cable network’smorning program.The program features interviews with top newsmakers and politicians and in-depthanalysis of the day’s biggest stories. In 2009, Starbucks recalled its coffee grinder products due tolaceration hazard issues faced by consumers. Also in 2009, the company launched ‘Just Pure Flavor’,an innovation for fresh brewed coffee that offers customizable flavor by the cup.

In January 2010, the company announced plans to enter the ready-to-drink coffee category in Europe,an approximately $550 million market. Additionally, Starbucks also signed an agreement with ArlaFoods for the manufacture, distribution and marketing of Starbucks-branded premium ready-to-drinkcoffee beverages in Europe. In the same month, Starbucks recalled its glass water bottles due tolaceration hazard.

Starbucks and Mac’s Convenience Stores (Mac), a subsidiary of Alimentation Couche-Tard, enteredinto a long term agreement, in March 2010. As per this agreement, Mac would expand the productsoffering of Starbucks Seattle’s best coffee brew from its current 290 convenience stores across fourprovinces in Western Canada to another 600 locations across Ontario, Canada.

Starbucks and Arla Foods entered into an agreement to offer Starbucks branded ready-to-drinkbeverages in Europe and the UK, and introduce Starbucks Discoveries chilled coffee and Starbucks



Doubleshot espresso drink in the UK and German markets, in April 2010. In the same month, thecompany launched Starbucks VIA coffee essence in Japan.

The company entered into an agreement with Ajinomoto General Foods in May 2010. Under theagreement Ajinomoto General Foods would sell the company’s instant coffee and other productsfor home consumption at supermarkets and other retailers in Japan.

In August 2010, Starbucks acquired 100% interest in Cafes Sereia do Brasil Participacoes, a Brazilbased owner and operator of cafes. The acquisition is in line with the company’s commitment togrow its international business.

The company acquired the remaining 50% stake of Magic Johnson Enterprises in Urban CoffeeOpportunities, in October 2010.

In November 2010, Starbucks announced that it would discontinue its agreement with Kraft andassume full responsibility for the sales and distribution of its packaged coffee products, beginningfrom March 2011.

Starbucks and Tata Coffee signed a non-binding memorandum of understanding in January 2011to collaborate for sourcing and roasting high-quality green coffee beans at Tata Coffee's Coorgfacility in India. In the same month, Starbucks launched mobile payment facility in all its US companyoperated stores. The facility allows customers to pay for their in-store purchases through selectsmart phones.

In February 2011, the company entered into an agreement with Courtesy Products (a leading providerof in-room coffee service to hotels in the US) to offer Starbucks ground coffees in approximately500,000 luxury and premium hotel rooms across the US. In the same month, Seattle's Best Coffeeand Delta Air Lines entered into an agreement to offer Seattle's Best Coffee in Delta Air Linesdomestic and international flights beginning from March 2011.

Starbucks entered into a strategic partnership with Green Mountain Coffee Roasters in March 2011.Under this agreement both the companies would partner to manufacture, market, distribute and sellStarbucks and Tazo Tea branded K-Cup portion pack for use in GMCR’s Keurig Single-Cup brewingsystem.

In the same month, the company launched its new product offerings, Cocoa Cappuccino, StarbucksPetites, Starbucks Tribute Blend and Starbucks VIA Ready Brew Tribute Blend, globally. Further inMarch 2011, Starbucks with joint venture partner Corporacion de Franquicias Americanas, openedits first store in Guatemala. The company also introduced its latest additions to Starbucks DigitalNetwork in partnership with Yahoo!, in March 2011.

In April 2011, the company launched its Starbucks VIA Ready Brew product at all of its stores inChina.



KEY EMPLOYEES

CompensationBoardJob TitleName

21733013 USDExecutive BoardChairman of the Board, Presidentand Chief Executive Officer

Howard Schultz

252042 USDNon Executive BoardDirectorWilliam W. Bradley

271258 USDNon Executive BoardDirectorMellody Hobson

245633 USDNon Executive BoardDirectorKevin R. Johnson

626600 USDNon Executive BoardDirectorOlden Lee

245633 USDNon Executive BoardDirectorSheryl Sandberg

245633 USDNon Executive BoardDirectorJames G. Shennan, Jr.

271258 USDNon Executive BoardDirectorJavier G. Teruel

271258 USDNon Executive BoardDirectorMyron E. Ullman, III

271258 USDNon Executive BoardDirectorCraig E. Weatherup

3790345 USDSenior ManagementPresident, Starbucks Coffee USClifford Burrows

3391840 USDSenior ManagementPresident, Starbucks CoffeeInternational

John Culver

Senior ManagementPresident, Global ConsumerProducts and Foodservice

Jeff Hansberry

Senior ManagementPresident, Global DevelopmentArthur Rubinfeld

Senior ManagementPresident, Seattle’s Best CoffeeMichelle Gass

Senior ManagementChief Marketing OfficerAnnie Young-Scrivner

3457984 USDSenior ManagementChief Financial Officer and ChiefAdministrative Officer

Troy Alstead

Senior ManagementExecutive Vice President, GeneralCounsel and Secretary

Paula E. Boggs

Senior ManagementExecutive Vice President, GlobalSupply Chain Operations

Peter Gibbons

Senior ManagementExecutive Vice President, ChiefInformation Officer and GeneralManager, Digital Ventures

Stephen Gillett

Senior ManagementExecutive Vice President, PartnerResources (Human Resources)

Kalen Holmes

Senior ManagementExecutive Vice President, PublicAffairs

Vivek Varma


Starbucks CorporationKey Employees

KEY EMPLOYEE BIOGRAPHIES

Howard Schultz

Board: Executive BoardJob Title: Chairman of the Board, President and Chief Executive OfficerSince: 2008Age: 57

Mr. Schultz has been the Chairman of the Board, President and Chief Executive Officer at StarbucksCorporation since 2008. He is also the founder of the company. Mr. Schultz has served as Chairmanat Starbucks since its inception in 1985. From 2000 to 2005, he served as Chief Global Strategistat the company. Previously, Mr. Schultz had served as the Chief Executive Officer at Starbucks from1985 to 2000. From 1986 to 1987, he served as the Chairman of the Board, Chief Executive Officerand President at Il Giornale Coffee Company, a predecessor to Starbucks. Prior to that, from 1982to 1985, Mr. Schultz served as the Director of Retail Operations and Marketing at Starbucks CoffeeCompany, a predecessor to the company.

William W. Bradley

Board: Non Executive BoardJob Title: DirectorSince: 2003Age: 67

Mr. Bradley has been a Director at Starbucks Corporation since 2003. He has also been a ManagingDirector at Allen & Company since 2000. From 2001 to 2004, Mr. Bradley served as the Chief OutsideAdvisor to McKinsey & Company's non-profit practice. He served as a Senior Advisor and ViceChairman of the International Council at JP Morgan & Co. from 1997 to1999. During the same period,Mr. Bradley worked as an essayist at CBS Evening News and was a visiting Professor at StanfordUniversity, Notre Dame University and the University of Maryland. He served in the US Senate from1979 to 1997. Mr. Bradley has previously served as a Director at Seagate Technology. He currentlyserves on the boards of directors at Willis Group Holdings and QuinStreet.

Mellody Hobson



Starbucks CorporationKey Employee Biographies

Ms. Hobson has been a Director at Starbucks Corporation since 2005. She serves as the Presidentand a Director at Ariel Capital Management (ACM) and as the Chairman and a Trustee of ArielMutual Funds. From 1994 to 2000, Ms. Hobson served as a Senior Vice President and Director ofMarketing at ACM and as the Vice President of Marketing at ACM from 1991 to 1994. Currently,she also serves as a Director at DreamWorks Animation SKG and The Estee Lauder Companies.

Kevin R. Johnson


Mr. Johnson has been a Director at Starbucks Corporation since 2009. He has served as ChiefExecutive Officer at Jupiter Networks since 2008. Prior to that, Mr. Johnson served as President,Platforms and Services division at Microsoft. He also serves as a Director at Juniper Networks.

Olden Lee


Mr. Lee has been a Director at Starbucks Corporation since 2003. He served as the Interim ExecutiveVice President, Partner Resources at Starbucks from 2009 to 2010. Mr. Lee previously served atPepsiCo for 28 years in various positions, including that of Senior Vice President of Human Resources,Taco Bell division and Senior Vice President and Chief Personnel Officer of its KFC division.

Sheryl Sandberg


Ms. Sandberg has been a Director at Starbucks Corporation since 2009. She has served as theChief Operating Officer at Facebook since 2008. From 2001 to 2008, Ms. Sandberg served as theVice President of Global Online Sales and Operations at Google. She is also a former Chief of Staffof the US Treasury Department. Before that, Ms. Sandberg served as a Management Consultantat McKinsey & Company and as an Economist at the World Bank. She has previously served as aDirector at eHealth and is currently a Director at The Walt Disney Company.

James G. Shennan, Jr.




Mr. Shennan has been a Director at Starbucks Corporation since 1990. He served as a GeneralPartner at Trinity Ventures from 1989 to 2005, when he became General Partner Emeritus. Prior tojoining Trinity Ventures, Mr. Shennan served as the Chief Executive at Addison Consultants, andtwo of its predecessor companies. Currently, he also serves as a Director at P.F. Chang's ChinaBistro.

Javier G.Teruel


Mr.Teruel has been a Director at Starbucks Corporation since 2005. He served as the Vice Chairmanat Colgate-Palmolive Company from 2004 to 2007. Prior to being appointed Vice Chairman, Mr.Teruel served as Colgate-Palmolive's Executive Vice President responsible for Asia, Central Europe,Africa and Hill's Pet Nutrition. After joining Colgate in 1971, Mr. Teruel served as Vice President ofBody Care in Global Business Development, New York, and President and General Manager ofColgate, Mexico. Previously, he served as a Director at The Pepsi Bottling Group and CorporacionGeo S.A.B. de C.V. Currently, Mr. Teruel serves as a Director at J.C. Penney Company and theNielsen Company. He also serves as a Partner of Spectron Desarrollo, an investment managementand consulting firm.

Myron E. Ullman, III


Mr. Ullman has been a Director at Starbucks Corporation since 2003. He has served as the Chairmanand Chief executive officer at J.C. Penney Company since 2004. Previously, Mr. Ullman served asDirecteur General, Group Managing Director at LVMH Moet Hennessy Louis Vuitton from 1999 to2002. From 1995 to 1999, he served as Chairman and Chief Executive Officer at DFS Group. From1992 to 1995, Mr. Ullman served as the Chairman and Chief Executive Officer at R.H. Macy & Co.Previously, he has served as a Director at Polo Ralph Lauren Corporation and Pzena InvestmentManagement. Currently, he serves as the Vice Chairman at the Federal Reserve Bank of Dallas.

Craig E. Weatherup




Mr. Weatherup has been a Director at Starbucks Corporation since 1999. He worked with PepsiCofor 24 years and served as Chief Executive Officer of its worldwide Pepsi-Cola business and as thePresident at PepsiCo. Mr. Weatherup also led the initial public offering at The Pepsi Bottling Group,where he served as Chairman and Chief Executive Officer from 1999 to 2003. Currently, he servesas a Director at Macy's.

Clifford Burrows

Board: Senior ManagementJob Title: President, Starbucks Coffee USSince: 2008Age: 51

Mr. Burrows has been the President of Starbucks Coffee US since 2008. He served as the President,Starbucks Coffee EMEA from 2006 to 2008. Mr. Burrows joined Starbucks in 2001 at the ManagingDirector, UK. Prior to joining Starbucks, he served as the Managing Director at Habitat Design, ahome furnishings company.

John Culver

Board: Senior ManagementJob Title: President, Starbucks Coffee InternationalSince: 2009Age: 50

Mr. Culver has been the President of Starbucks Coffee International since 2009. Previously, heserved as the President, Global Consumer Products and Foodservice at the company. From 2007to 2009, Mr. Culver was the President, Starbucks Coffee Asia Pacific. He joined the company in2002. Before joining Starbucks, Mr. Culver served as the Vice President, Sales at Nestle USA.

Jeff Hansberry

Board: Senior ManagementJob Title: President, Global Consumer Products and FoodserviceSince: 2010Age: 46

Mr. Hansberry has been the President, Global Consumer Products and Foodservice at StarbucksCorporation since 2010. Before joining the company, he served as Vice President and General



Manager, Popular B U at E&J Gallo Winery from 2008 to 2010. At E&J Gallo Winery, Mr. Hansberryserved as Vice President and General Manager, Value BU from 2007 to 2008 and as Vice Presidentand General Manager Asia from 2005 to 2007. Prior to E. & J. Gallo, Mr. Hansberry held variouspositions with Procter & Gamble.

Arthur Rubinfeld

Board: Senior ManagementJob Title: President, Global DevelopmentSince: 2008Age: 57

Mr. Rubinfeld has been the President, Global Development at Starbucks Corporation since 2008.He joined the company in 1992. In 2002, Mr. Rubinfeld founded AIRVISION, an advisory firmspecializing in brand positioning. In 2006, he was appointed the Executive Vice President, CorporateStrategy and Chief Development Officer at Potbelly Sandwich Works.

Michelle Gass

Board: Senior ManagementJob Title: President, Seattle’s Best CoffeeSince: 2009Age: 42

Ms. Gass has been the President, Seattle's Best Coffee at Starbucks Corporation since 2009. From2009 to 2010, she served as the Interim President, Starbucks Global Consumer and FoodserviceDivision. Prior to this, Ms. Gass was the Executive Vice President, Marketing and Category atStarbucks. She joined the company in 1996 as the Marketing Manager for Frappuccino. Beforejoining Starbucks, Ms. Gass was employed with Procter & Gamble.

Annie Young-Scrivner

Board: Senior ManagementJob Title: Chief Marketing OfficerSince: 2009Age: 41

Ms.Young-Scrivner has been the Chief Marketing Officer at Starbucks Corporation since 2009. Priorto joining the company, she served as the Chief Marketing Officer and Vice President of Sales atQuaker Foods and Snacks, a division of PepsiCo.

Troy Alstead



Board: Senior ManagementJob Title: Chief Financial Officer and Chief Administrative OfficerSince: 2008Age: 47

Mr. Alstead has been the Chief Financial Officer and Chief Administrative Officer at StarbucksCorporation since 2008. He previously served as Chief Operating Officer, Starbucks Greater Chinafrom April 2008 to October 2008, and as Senior Vice President, Global Finance and BusinessOperations from 2007 to April 2008. Mr. Alstead joined the company in 1992.

Paula E. Boggs

Board: Senior ManagementJob Title: Executive Vice President, General Counsel and SecretarySince: 2002Age: 51

Ms. Boggs has been Executive Vice President, General Counsel and Secretary at StarbucksCorporation since 2002. Before joining Starbucks, she served as the Vice President, Legal forProducts, Operations and Information Technology Systems at Dell Computer Corporation from 1997to 2002. Previously, Ms. Boggs served as a Partner at Preston Gates & Ellis.

Peter Gibbons

Board: Senior ManagementJob Title: Executive Vice President, Global Supply Chain OperationsSince: 2008Age: 49

Mr. Gibbons has been the Executive Vice President, Global Supply Chain Operations at StarbucksCorporation since 2008. He joined the company in 2007 as the Senior Vice President, GlobalManufacturing Operations. Mr. Gibbons started his career with the synthetic fibers division at ICI, aglobal chemical company.

Stephen Gillett

Board: Senior ManagementJob Title: Executive Vice President, Chief Information Officer and General Manager, Digital VenturesSince: 2010Age: 34

Mr. Gillett has been an Executive Vice President, the Chief Information Officer and General Manager,Digital Ventures at Starbucks Corporation since 2010. He joined the company in 2008 as SeniorVice President, Chief Information Officer and General Manager, Digital Ventures. Prior to joining the



company, Mr. Gillett was the Chief Information Officer and Senior Vice President, Engineering atCorbis from 2006 to 2008. From 2004 to 2006, he served as Senior Director Engineering at Yahoo!,an internet destination and online media company.

Kalen Holmes

Board: Senior ManagementJob Title: Executive Vice President, Partner Resources (Human Resources)Since: 2009Age: 44

Ms. Holmes has been the Executive Vice President, Partner Resources (Human Resources) atStarbucks Corporation since 2009. She joined the company in 2009. Prior to joining Starbucks, Ms.Holmes was Human Resources General Manager for the Entertainment and Devices division atMicrosoft Corporation from 2007 to 2009. From 2005 to 2007, she served as Human ResourcesGeneral Manager at Microsoft’s Server and Tools division. From 2003 to 2005, Ms. Holmes servedas Human Resources General Manager at Microsoft’s Corporate Staff business unit.

Vivek Varma

Board: Senior ManagementJob Title: Executive Vice President, Public AffairsSince: 2010Age: 44

Mr. Varma has been the Executive Vice President, Public Affairs at Starbucks Corporation since2010. He joined the company in 2008 as Senior Vice President, Public Affairs. Prior to joiningStarbucks, Mr. Varma was General Manager of Communications and Public Relations for thePlatforms and Services division at Microsoft from 2006 to 2008. From 2002 to 2006, he served in anumber of other positions at Microsoft, including Senior Director of Corporate Communications andPublic Relations in Microsoft’s Corporate Marketing Group.



MAJOR PRODUCTS AND SERVICES

Starbucks Corporation is a premier roaster and retailer of specialty coffee. The company's key products and services include the following:

Products:

CoffeesItalian-style espresso beveragesCold blended beveragesSandwichesFresh food (baked pastries, salads, oatmeal, yogurt parfaits and fruit cups)Premium teas

Other:

Coffee and tea brewing equipmentMugs and accessoriesPackaged goodsMusicBooksGift items

Brand:

StarbucksTazoSeattle’s Best CoffeeTorrefazione Italia CoffeeStarbucks VIAFrappuccino


Starbucks CorporationMajor Products and Services

REVENUE ANALYSIS


The company recorded revenues of $10,707.4 million during the financial year ended September2010 (FY2010), an increase of 9.5% over FY2009. For FY2010, the US, the company's largestgeographic market, accounted for 77.8% of the total revenues.

Starbucks generates revenues through four business segments: the US operations (70.6% of thetotal revenues during FY2010), international operations (21.4%), global consumer products group(6.6%) and other (1.4%).

Revenues by segment

In FY2010, the US operations segment recorded revenues of $7,560.4 million, an increase of 7.1%over FY2009.

The international operations segment recorded revenues of $2,288.8 million in FY2010, an increaseof 19.6% over FY2009.

The global consumer products group segment recorded revenues of $707.4 million in FY2010, anincrease of 4.9% over FY2009.

The other segment recorded revenues of $150.8 million in FY2010, an increase of 21.4% overFY2009.

Revenues by geography

The US, Starbucks's largest geographical market, accounted for 77.8% of the total revenues inFY2010. Revenues from the US reached $8,335.4 million in FY2010, an increase of 7% over FY2009.

Other countries accounted for 22.2% of the total revenues in FY2010. Revenues from other countriesreached $2,372 million in 2010, an increase of 19.4% over FY2009.


Starbucks CorporationRevenue Analysis

SWOT ANALYSIS

Starbucks Corporation (Starbucks or ‘’the company’’) is a premier roaster and retailer of specialtycoffee. It operates in more than 50 countries through its company-owned stores as well as licensedretail stores. Starbucks's wide geographical reach increases its bargaining leverage and also enhancesits brand equity.The company’s continued expansion in existing markets as well as new and emergingcountries is indicative of its plans to establish a global retail footprint and reduce its dependency onfew markets. However, the company’s profitability could be adversely affected by rising coffee prices.

WeaknessesStrengths

Product recalls adversely affect brandimage

Wide geographic presence strengthenedby continued expansionStrengthening presence in other distributionchannelsResearch and development capabilitiesleveraged to strengthen product portfolio

ThreatsOpportunities

Rising commodity prices can adverselyaffect Starbucks's profit margins

Growing presence in key Asian marketsInvestments to improve customer interface

Rising labor cost in the USExpanding presence in the growingsingle-serve coffee market in the US Slowdown in the US economy

Strengths

Wide geographic presence strengthened by continued expansion

Starbucks has a wide geographic presence with operations extending to more than 50 countries.Its international markets include Argentina, Australia, Austria, Brazil, Bulgaria, Canada, China, CzechRepublic, France, Germany, Greece, Hong Kong, Indonesia, Ireland, Japan, Malaysia, Mexico,Middle East, New Zealand, Peru, Poland, Portugal, Romania, Russia, Singapore, South Korea,Spain, Switzerland, Taiwan, Thailand, Turkey and the UK. The company operates in these marketsthrough its own stores as well as licensed retail stores. At the end of FY2010, Starbucks had 6,707company-operated retail stores in the US and 2,126 in international markets (Canada 799, the UK601, China 220, Germany 142, Thailand 133 and other countries 231). The revenues from thesestores accounted for 84% of total net revenues in FY2010.

The company partners with established local players for access to retail space to operate licensedretail stores. Starbucks receives royalties and license fees under these arrangements. At the end


Starbucks CorporationSWOT Analysis

of FY2010, the company had 4,424 licensed stores in the US market, and 3,601 licensed stores inthe international markets (Asia Pacific 2,141, Europe/Middle East/Africa 840, Canada 274, Mexico283 and Rest of Americas 63). The royalty and license fee revenues from the US and internationallicensed retail stores accounted for 50% of revenues from specialty operations (Specialty operationscontributed 16% to the total revenues of the company) in FY2010.

Starbucks has been pursuing opportunities to expand its company-owned retail stores. In August2010, it assumed 100% ownership and operating control of Starbucks Brazil through the acquisitionof Cafes Sereia do Brasil Participacoes. Consequently, the business in Brazil was converted into acompany-operated business enabling Starbucks to focus on the strengthening its presence in Brazil,the largest consumer market in South America.

The company is also working towards expanding its market presence by partnering with localcompanies in existing markets as well as new and emerging countries. In August 2010, Starbucksentered into a strategic area development agreement with Corporacion de Franquicias Americanas,one of Central America’s largest multi-brand franchise operators, to open licensed Starbucks storesthroughout Central America. The first store was open in San Salvador, El Salvador in November2010. Another store was opened in Guatemala in March 2011. Starbucks is also aiming atstrengthening its foothold in the Asian markets.The company has recently announced plans to enterthe India market in alliance with Tata Coffee. Both companies will jointly explore the developmentof Starbucks retail stores in associated retail outlets and hotels. Starbucks is also aggressivelypenetrating the Chinese market. The company expects to operate over 1,500 stores by 2015.

Starbucks's wide geographical reach increases its bargaining leverage and also enhances thecompany’s brand equity. The company’s continuous efforts towards expanding its internationalpresence are indicative of its plans to establish a global retail footprint and reduce its dependencyon few markets.

Strengthening presence in other distribution channels

Starbucks has been undertaking initiatives towards developing its brands through a number ofchannels besides the company-operated retail store environment. Starbucks is expanding itsdistribution network to include as many channels to reach customers where they work, travel, shopand dine. The company enters into tie-ups with third parties in various forms, including licensingarrangements, foodservice accounts and others. Starbucks licenses the rights to produce and marketStarbucks and Seattle’s Best Coffee branded products through several partnerships both domesticallyand internationally. For instance, it is a 50% equity investor in the North American Coffee Partnership,a joint venture with Pepsi-Cola Company, which is engaged in manufacturing and marketingready-to-drink beverages, including bottled Frappuccino beverages, Starbucks DoubleShot, andSeattle’s Best Coffee espresso beverages in the US and Canada markets. Starbucks also haslicensing agreement with a partnership formed by Unilever and Pepsi-Cola Company for themanufacturing, marketing and distribution of Starbucks super-premium Tazo Tea beverages in theUS. Additionally, Starbucks sells packaged coffee and tea internationally directly to warehouse clubstores such as Costco Wholesale.The company also sells whole bean and ground coffees, includingthe Starbucks and Seattle’s Best Coffee brands, as well as a selection of premium Tazo teas,



Starbucks VIA Ready Brew and other related products, to institutional foodservice companies thatservice business and industry, education, healthcare, office coffee distributors, hotels, restaurants,airlines and other retailers. It also sells Seattle’s Best Coffee through arrangements with nationalaccounts.

Starbucks has been expanding its distribution network through strategic agreements with variousbusiness partners. The company entered into an agreement with Courtesy Products (a leadingprovider of in-room coffee service in hotels in the US) in 2011, to offer Starbucks ground coffees inapproximately 500,000 luxury and premium hotel rooms across the US. In the same year, Starbucksentered into a strategic partnership with Green Mountain Coffee Roasters for manufacturing,marketing, distributing and sale of Starbucks and Tazo Tea branded K-Cup portion pack for use inGMCR’s Keurig Single-Cup brewing system. Starbucks and GMCR plan to make Starbucks K-Cupportion packs available through food, drug, mass, club, specialty and department store retailersthroughout the US and Canada beginning in the fall of 2011.

Seattle's Best Coffee, a division of Starbucks, has been expanding its distribution channels. Thedivision currently markets its products through diversified distribution channels, including cafes andkiosks, college campuses, restaurants, hotels, airlines, cruise ships, bookstores, grocery stores andmovie theatres. It continues to explore new distribution avenues. In 2010, Seattle's Best Coffeesigned an agreement with Burger King to offer Seattle's Best Coffee at nearly 7,250 Burger King’srestaurants across the US market. In the same year, Seattle's Best Coffee entered into an agreementwith AMC Theatres to offer its products at 300 AMC Theatres throughout the US. Furthermore,Seattle's Best Coffee entered into an agreement with Delta Air Lines in February 2011, to offerSeattle's Best Coffee to customers onboard all Delta Air Lines domestic and international flights aswell as Delta connecting flights beginning March 1, 2011. Through these distribution arrangements,Starbucks has increased its distribution points to 40,000 in 2011 from just 3,000 in 2009.

These strategic agreements allow Starbucks to break through its traditional route and market itsproducts through new channels of distribution. They also increase the addressable market and addnew avenues for revenue generation.

Research and development capabilities leveraged to strengthen product portfolio

Starbucks’s strong research and development (R&D) capabilities enable it to innovate products atregular intervals and offer an extensive range of coffee products to its customers. The company hasa strong R&D team which is responsible for the technical development of food and beverage productsand new equipment. Starbucks invests substantial amount of resources on technical research anddevelopment activities, including customary product testing and product and process improvements.The company’s R&D expenditure totaled $9 million, $7 million and $7 million during FY2010, FY2009,and FY2008, respectively.

Starbucks’s strong R&D capabilities enable it to focus on relevant product innovation, expansionand leveraging of its existing products and sales channels. The company has launched severalproducts in recent times. Starbucks launched Starbucks VIA Ready Brew, a 100% natural roastedcoffee made without preservatives, in February 2009. Starbucks VIA Ready Brew was developed



based on a proprietary, patent-pending technology to preserve the coffee’s taste, quality andfreshness. The product achieved phenomenal success and was launched in international markets,including Canada, the UK, Japan and the Philippines. The company introduced new variants underthe Starbucks VIA Ready Brew line of products, including Starbucks VIA Decaf, Starbucks VIA ReadyBrew Decaffeinated Italian Roast, Starbucks VIA Coffee Essence, Starbucks VIA Iced Coffee,Starbucks VIA Coffee Essence Iced Coffee and Starbucks VIA Flavored Coffees. As of August 2010,Starbucks VIA Ready Brew was distributed through more than 37,000 points of distribution in theUS including Starbucks stores; food, drug and mass merchandiser stores; foodservice accounts;and through e-commerce. Starbucks VIA Ready Brew was named the “Most Innovative New Productof the Year” by Allegra Strategies in the UK, and the “Best New Consumer Product” by ProgressiveGrocer magazine in the US. Within ten months of its launch, Starbucks VIA Ready Brew touchedthe $100 million mark in global sales. Starbucks VIA Ready Brew coffee contributed approximately$22 million to CPG’s net revenue in FY2010.

The company R&D capabilities have helped it build an extensive product portfolio offering severalvarieties to meet the tastes of different customers. Starbucks’s stores offer a wide choice of regularand decaffeinated coffee beverages, a broad selection of Italian-style espresso beverages, coldblended beverages, iced shaken refreshment beverages, a selection of premium teas, and distinctivelypackaged roasted whole bean coffees. Seattle’s Best Coffee offers more than 30 whole bean andground coffees (including flavored, organic and Fair Trade Certified coffees), espresso beverages,signature hand-crafted JavaKula blended beverages, OvenSong bakery food and sandwiches, andselect merchandise. In 2010, Seattle’s Best Coffee entered into the $1.4 billion ready-to-drink USmarket with the launch of its new range of iced canned lattes.

Thus, by leveraging its R&D capabilities, Starbucks has been able to regularly revitalize its productportfolio and increase its market share in the premium single-cup coffee and ready-to-drink beveragesmarkets. The introduction of new products at regular intervals helps Starbucks to maintain itscompetitiveness in the industry.

Weaknesses

Product recalls adversely affect brand image

Starbucks has been registering increasing instances of product recalls lately. In January 2010, thecompany recalled 11,000 and 1,200 units of glass water bottles supplied in the US and Canada,respectively. The recall was initiated after it was found that the bottle could shatter while removingor inserting its stopper, posing a laceration hazard to consumers. Previously, in FY2009, the USConsumer Product Safety Commission ordered recall of 530,000 units of Starbucks Barista BladeGrinders and Seattle's Best Coffee Blade Grinders. The recall was prompted as the company’sgrinders could fail to turn off or could turn on unexpectedly, posing a laceration hazard to consumers.Previously, Starbucks has also recalled few of its products containing peanut butter from its storesfollowing an outbreak of salmonella in the US. Product recalls affect the value of the Starbucks brandand could result in a decline in demand for its products.



Opportunities

Growing presence in key Asian markets

Starbucks has been aggressively expanding its presence in Asia, particularly in China and India.The fast pace economic development in China (gross domestic product growth of 10.3% in fiscalyear 2010 and 9.2% in fiscal year 2009) coupled with the rise of the middle class income group andtheir increasing disposable income have contributed to the increase in demand for various consumergoods in the country. More than 160 cities in China have population greater than one million.Furthermore, the middle class population in China is expected to double by 2025. These factors areexpected to lend support to the growing demand for consumer products offered by Starbucks. Inorder to tap this growing market, Starbucks has already embarked on aggressive expansion plansin the country. It plans to open more than 1,000 new stores in China by 2015, increasing its storecount to 1,500. China is expected to represent 32% of the company’s total international unit openingsduring FY2011 to FY2015. Starbucks has been registering strong comparable store sales in China.In the first quarter of FY2011, the company has registered comparable store sales of more than 20%in China; and the China business also generated highest unit-level margins (more than 22%) forStarbucks in the world.

The company recently announced plans to enter the Indian market. India primarily consists of teadrinkers. However, the changing demographic and the country’s rising middle class population arecontributing significantly to the rise in coffee consumption. According to the Tea Board and CoffeeBoard of India, Indians consumed around 700,000 tonnes of tea in 2010 compared to 75,000 tonnesof coffee. This is indicative of the market potential for coffee in the country. To capture this growthtrend, Starbucks is entering the Indian market. In January 2011, Starbucks and Tata Coffee signeda non-binding memorandum of understanding on collaborating for sourcing and roasting of high-qualitygreen coffee beans in Tata Coffee's facility at Coorg, India. Tata Coffee, one of the leading coffeeproducers in India, owns the Eight O’Clock Coffee Co. in the US. Besides sourcing coffee beansfrom south India and roasting them locally, Tata Coffee and Starbucks will jointly explore thedevelopment of Starbucks retail stores in associated retail outlets and hotels. Starbucks also plansto form alliances with other local players in the future to open Starbucks stores in India.

Therefore, by leveraging its strong brand name and business alliances with local players, Starbuckscan expand the company’s presence in fast growing Asian markets and lend stability to its toplinegrowth.

Investments to improve customer interface

Starbucks has been investing substantial amount of its resources towards enhancing its customerexperience. For instance, in January 2011, Starbucks launched its mobile payment application atall of its 6,800 company owned stores and 1000 stores operated by Target in the US market. Thisapplication allows customers to pay for their in¬-store purchases through select smartphones. TheStarbucks Card Mobile App displays a barcode that can be used just like a Starbucks Card to makea purchase.To pay, customers need to hold the mobile device in front of a scanner on the countertop



and scan the Starbucks Card Mobile App’s on-screen barcode to make a purchase. The applicationalso allows customers to track rewards and reload balance using PayPal. The program was testedat select stores in 2009. After extensive testing, it was found to be an efficient and quick way toprocess payments at the company’s stores. More than 3 million customers have used Starbucksmobile payment application since its launch. According to Starbucks, there is a demand for such atype of payment service. Over one third of its customers use a smartphone and one in five use aStarbucks card at checkout.

Further in October 2010, Starbucks in partnership with Yahoo launched Starbucks Digital Network(SDN) at its stores in the US. Through SDN, the company offers a package of free web content atits stores. Initially, the web content offered included six channels: news and sports, entertainment,wellness, business and careers, My Neighborhood, and Starbucks. Other content partners includedare Bookish Reading Club, Foursquare, Good, LinkedIn, New Word City, and The Weather Channel.Customers at the company’s stores can access SDN on their smartphones, laptops and tablets.SDN received an overwhelming response with nearly 8 million visitors in the first two months of itslaunch.

Thus, by investing in such applications, Starbucks can boost loyalty among customers who seekspeed, ease and convenience.

Expanding presence in the growing single-serve coffee market in the US

Starbucks has been expanding its CPG business in the fast growing single-serve coffee market inthe US. According to industry experts, the growth of the coffee market in the US in 2010 was primarilydriven by sales of single-cup coffee which totaled nearly $2 billion. Though the single-serve coffeecomes at a higher cost, its popularity is on the rise. According to experts, it may appeal to peoplebetween the age group of 18 to 24 years setting up their first homes and older consumers with limitedliving space because of the convenience and variety it offers.

Starbucks entered the single-cup segment in the US with the launch of VIA Ready Brew in 2009.The product was subsequently launched in international markets, including Canada, the UK, Japanand the Philippines. The company also introduced new variants under the Starbucks VIA ReadyBrew product line. As of August 2010, Starbucks VIA Ready Brew was distributed through morethan 37,000 points of distribution in the US including Starbucks stores; food, drug and massmerchandiser stores; foodservice accounts; and through e-commerce.

The company has been pursuing opportunities to penetrate into the single-serves coffee market inthe US. In February 2011, the company entered into an agreement with Courtesy Products to offerStarbucks ground coffees for use in the latter’s patented C1 in-room and on-demand brewed coffeesystems. Courtesy Products is one of the leading providers of in-room coffee service to hotels in theUS. Under the agreement, Starbucks ground coffees would be made available in approximately500,000 luxury and premium hotel rooms across the US that are being served by Courtesy Products.

In March 2011, Starbucks entered into a strategic alliance with Green Mountain Coffee Roasters formanufacturing, marketing, distributing and sale of Starbucks and Tazo Tea branded K-Cup portion



pack for use in GMCR’s Keurig Single-Cup brewing system. Starbucks is the exclusive, licensedsuper-premium coffee brand to be produced by GMCR for its Keurig single-cup brewing system.Starbucks’s K-Cup portion packs would be made available at food, drug, mass, club, specialty anddepartment store retailers in the US and Canada. The companies plan to expand Starbucks K-Cupportion pack and Keurig Single-Cup Brewing system distribution to Starbucks stores and to makeStarbucks K-Cup portion packs available through GMCR's consumer-direct websites:www.greenmountaincoffee.com and www.keurig.com, and Starbucks consumer-direct website:www.starbucks.com, beginning in 2012. GMCR is one of the leading providers of specialty coffeeand single-serve brewing systems in the country. The company’s association with GMCR wouldfurther increase its addressable market.

Therefore, through strategic alliances with GMCR and Courtesy Products, Starbucks can tap thegrowing demand for single-serve coffee in the US and broaden its customer base.

Threats

Rising coffee prices can adversely affect Starbucks’s profit margins

Coffee prices have climbed steeply in the past few years. The shortage in the supply of coffee inthe wake of growing global demand caused the price hikes. The demand for coffee has especiallyincreased in the developing nations. Additionally, speculation with respect to poor early coffee cropsin South America and Central America and an expected increase in shipping costs as a result of theGulf oil disaster, led to high coffee prices in 2010.The shortage in supply of the Arabica coffee plantvarietal, which is mostly used by specialty coffee retailers such as Starbucks, Caribou Coffee andPeet’s Coffee also led to the rise in prices. In 2010, the price of Colombian Mild Arabicas in the NewYork market was $2.23 per pound (lb) compared to $1.45 per lb in 2008, representing an increaseof 53.8%. During the same period, the price of Other Mild Arabicas and Brazilian Natural Arabicasincreased by 40.5% and 19%, respectively, in the New York market.

With demand outstripping supply, the coffee prices are expected to remain high during 2011. Thecost of coffee accounts for 17% of Starbucks’s overall cost of goods sold and 7% of total revenue.Although Starbucks is one of the leading players in the coffee industry with significant bargainingpower, continued rise in the coffee prices could impact the company’s profitability.

Rising labor cost in the US

Over the past few years, labor costs have risen significantly in the US.Tight labor markets, increasedovertime, government mandated increases in minimum wages and a higher proportion of full-timeemployees are resulting in an increase in labor costs for employers. This could adversely affectStarbucks’s cost structure. The federal minimum wage rate in the US was increased to $6.55 anhour in July 2008 and to $7.25 an hour later in July 2009. More than 35 million working people inthe US are paid only the minimum wage, and therefore, the minimum wage rate has a strong impact.Additionally, many states and municipalities in the country have minimum wage rate higher than the



federal minimum wage rate due to higher cost of living. Starbucks presently employs 137,000 people.Thus, increasing labor costs could increase the company’s overall costs and adversely affect itsmargins.

Slowdown in the US economy

The US economy has been growing at a slow pace after the financial crisis it suffered in 2008.Consumption expenditure which forms approximately 70% of the country’s Gross domestic Product(GDP), grew by only 1.7% in 2010 over 2009. Further, in February 2011, the personal consumptionexpenditure grew by 0.7% over the previous month. The growth in the personal consumption rateremained sluggish as customers continued to save more.The average personal savings rate increasedto 5.8% in 2010 compared to 4.3% in 2009. Additionally, personal saving as a percentage ofdisposable personal income was 5.8% in February 2011, compared to 6.1% in the previous month.

The unemployment rate which remained at 9.4% towards the end of 2010 is also one of the reasonsfor customers keeping their spending at low levels. Though the unemployment rate reduced to 9%in January 2011 and to 8.9% in February 2011, it still is significantly high and is expected to remainsteady at around 8% in 2011. High unemployment rate adversely affects consumer spending as theconsumers feel unsecured about the future income prospects. Thus, slow economic growth in theUS can pressurize Starbucks’s top line growth and profit margins.



TOP COMPETITORS

The following companies are the major competitors of Starbucks Corporation

Dunkin' Brands, Inc.McDonald's CorporationNestlé SADiedrich Coffee, Inc.Caribou Coffee Company, Inc.Peet's Coffee & Tea, Inc.The J.M. Smucker Company


Starbucks CorporationTop Competitors

COMPANY VIEW

A statement by Howard Schultz, the Chairman of the Board, President and Chief Executive Officerat Starbucks Corporation is given below. The statement has been taken from the company’s AnnualReport for FY2010.

Dear Shareholders,

Perhaps more than any other time in Starbucks history, I write to you feeling extremely proud ofwhat Starbucks has accomplished not just in these past 12 months but also in the past three years.

We began our transformation journey in 2008 when I returned as CEO. In 2009, the seeds of thattransformation took root. Fiscal 2010 marked the transformation’s defining year as we deliveredrecord financial results.

During this past fiscal year, revenues increased to a record $10.7 billion. Operating income increasedby $857 million from fiscal 2009 to $1.4 billion. Our full-year operating margin of 13.3 percentrepresented the highest full-year consolidated operating margin in our history. We ended 2010 withthe highest full-year comparable store sales growth that we have seen in the recent past, while ourearnings per share also grew significantly from fiscal 2009, more than double on a comparable52-week basis. I am thrilled that we were able to further share our success with a first-ever dividendfor shareholders and, for our partners, maintaining health care coverage while renewing our focuson elevating the partner experience through recent enhancements to our broad-based equity planand our 401(k) program. We were also able to offer a special cash award to eligible partners inrecognition of their contribution to Starbucks strong performance in 2010.

For these reasons and more, we begin 2011 healthier than we have ever been and with thecapabilities, talent, resources and passion to continue our momentum. The internal obstacles weovercame, while simultaneously navigating the ongoing economic challenges and staying true toour values, have made us a stronger company.

Today our operational foundation—coupled with a heightened level of innovation and customerrelevance—presents us with an opportunity not just to grow but also to build a different kind oforganization. Not a new Starbucks, but one that will leverage and extend our core strengths bothinside and outside our stores.

A Strong Foundation

Momentous positive changes inside the organization drove our success this past year. In fiscal 2010,we built upon the nearly $600 million of cost savings in fiscal 2009 while driving many of our keyfinancial metrics to record levels. We have improved the efficiency and effectiveness of our supplychain toward world-class levels. In our U.S. business, revenues and operating income are growingagain, with our store partners working passionately to elevate the Starbucks Experience. We had


Starbucks CorporationCompany View

broad-based revenue growth in our Global Consumer Products Group (CPG) and we are also wellon our way to building a world-class sales organization and back-of-the house infrastructure tosupport profitable CPG growth, which will enable us to present one brand voice for Starbucks entireportfolio.

Internationally, the foundation of our brand remains strong, and the work we did in 2010 broughtmore discipline, ideas and leadership to local markets and helped deliver record financial performancein fiscal 2010, setting the International business up to be a profitable growth engine going forward.Specifically, after a decade in China, Starbucks is being embraced by customers as a welcome thirdplace between home and work in major, secondary and even tertiary cities. We continue to stay trueto our brand while finding fresh ways to be locally relevant in a market that we expect to be Starbuckssecond largest after North America.

In customer-facing initiatives, we are enriching our connections on many fronts. The My StarbucksRewards loyalty program continues to have significant traction, driving incremental transactions toour stores. Using social and digital media, we are further expanding how we engage our customers.Our more than 27 million fans around the world have made us a top brand on Facebook. And withthe October unveiling of the Starbucks Digital Network, we tapped into the value of our vast Wi-Finetwork to bring customers in our stores free premium content, from daily news in The Wall StreetJournal to music downloads from Apple’s iTunes. During the first two months after its launch, theStarbucks Digital Network received nearly 8 million visitors and overwhelmingly positive customerfeedback.

Innovation remains a cornerstone of our growth. With the launch of Starbucks VIA Ready Brew andits current platform of products—Iced, Flavored, Christmas Blend—we have already created abusiness with system-wide sales of approximately $180 million in fiscal 2010 with more than 50,000points of distribution, bringing new customers and new occasions to the marketplace as well asgrowing Starbucks share of the premium single-cup coffee category. In addition, based in part onthe positive response to Starbucks VIA and its early success in Canada, the United Kingdom, Japanand the Philippines, we continue to believe that the global opportunity for Starbucks VIA is significantand yet to be fully tapped. Stay tuned for more Starbucks VIA developments in the coming year.

Also in our stores, the adoption of new technology platforms and Lean principles are helping toimprove the partner and customer experience. Customer satisfaction scores for partner friendliness,speed of service and taste of beverage continue to increase.

The one-on-one connections that we make with the more than 50 million visitors around the worldwho come into our stores each week define our heritage, and are critical to creating the future weenvision.

A New Blueprint for Growth

Going forward, we will be combining the company’s unique strengths in ways that will allow us togo to market in a way that only Starbucks can.



We believe we have the potential to build a portfolio of $1 billion brands inside and outside our storesusing a unique strategy. Sourcing, roasting and serving high-quality coffee will remain our core, butwe are also pursuing sustainable, profitable growth with a more diversified, multi-channel andmulti-brand business model. In the near term, we are focusing on Starbucks VIA Ready Brew,Frappuccino beverages—which is already a $2 billion platform—and the Tazo tea brand. In additionwe have also made significant progress with Seattle’s Best Coffee. After unleashing its exciting newbrand identity and expansion strategy, a freshly brewed cup of Seattle’s Best Coffee is now offeredin more than 40,000 locations, up tenfold since 2009.

Our new go-to-market strategy leverages Starbucks unique business structure: our global footprintof retail stores; our distribution network and presence in grocery stores; and the authentic emotionalconnections we establish with our customers in stores, with our loyalty programs and through digitalmedia. Each of these points of connection complements the other, encouraging our customers totry new products, adopt new rituals and make more frequent purchases. We saw this model playout extremely well with Starbucks VIA Ready Brew, and we are tremendously optimistic about itspotential to drive growth with our other brands.

Starbucks 40th Anniversary

It is hard to believe, but March 2011 marks Starbucks 40th year in business since we opened ourfirst store in Pike Place Market in Seattle. This is a major milestone, and we will be celebrating in avariety of ways that honor our past and reflect where we are headed.

One of the most relevant ways to celebrate our anniversary is by giving back to our neighborhoods.Community involvement is central to Starbucks mission, and soon our partners and customersaround the world will more actively initiate and participate in a new array of local community-serviceprojects that we believe will result in longer-term community support. Personally, I can think of nobetter way to celebrate and I hope you will all join us in these efforts.

This year, we will roll out our elegant new brand identity with an evolved logo that embraces ourhistory while granting us more freedom and flexibility to think beyond coffee and even beyond ourstores. A great deal of thought went into creating the new design, and we believe it sets the stagefor our next chapter. Finally, because anniversaries are also a time to reflect on the past, a bookdocumenting our transformation will be published in late March. In Onward: How Starbucks Foughtfor Its Life without Losing Its Soul, I candidly share our journey, both the highs and the lows, becauseunderstanding and better appreciating how we transformed will, I feel, enhance our future.

This is a very exciting time for Starbucks, yet we have emerged from our past humbled, refusing totake anything for granted, and determined to grow with as intense a level of discipline and innovationas we have ever demonstrated. As a global consumer brand with almost 17,000 stores and growingbusinesses outside of our stores, we believe that we are in a rare position to internally offset externalpressures from what will likely continue to be a very challenging global economy in the near term.



At every stage of our journey, we have been fortunate to receive the support of our partners, ourcustomers, our shareholders, business partners, farmers and suppliers. Thank you all for standingby us, and for continuing to believe in what Starbucks stands for and in our ability to deliver.



LOCATIONS AND SUBSIDIARIESHead Office

Starbucks Corporation2401 Utah Avenue SouthSeattleWashington 98134USAP:1 206 447 1575http://www.starbucks.com/

Other Locations and Subsidiaries

Starbucks Coffee New ZealandStarbucks CorporationOtahuhuLiberator Building ParkAucklandAvenida del LibertadorNZLN° 1295 3rd Floor

B1638BEL Vicente LopezBuenos Aires ProvinceARG

Starbucks Coffee Company AustraliaStarbucks Coffee Japan, Ltd.Frenchs Forest DC2-22-16 JingumaeNew South Wales 2086Shibuya-kuAUSTokyo

JPN


Starbucks CorporationLocations and Subsidiaries

Starbucks Corporation

Documents

Transcript of Starbucks Corporation