Starbucks Corporation

TABLE OF CONTENTS

Executive Summary

Starbucks

The Company

Mission and Vision Statement

Current Strategies

Corporate Level

Functional Level

Strategic-Consistency

Competitive Environment

Analysis of Outside Forces

Porters 5 Forces

Ethical Legal and Social Challenges

External Factor Evaluation

Competitive Profile Matrix

Assessment of Alternative Strategies

SWOT Analysis

Space Matrix

Grand Strategy Matrix

Summary

Recommendations

Expand Operations

Engage in Advertising

QSPM

Implementation

Evaluation

Closing Remarks

Starbucks:The rise, fall, and revival

For 20 straight years, Starbucks was on a magical carpet ride, he said. Everything we touched turned to gold. Howard Schultz stepped down from CEO in 2000 to chief global strategist. He broke down and cried. The coffeehouse had gone negative for the first time, down 8.6 percent, and if the declines reached 14.8 percent, Starbucks would be insolvent.

In 2008 he returned and promised to turn things around. Schultz spent almost $33 million to bring 11,000 store managers to New Orleans from all around the world. He was preparing a speech for them and his most trusted advisors told him, almost in unison, that he could not share with them how desperate the situation really was.

First things first, managers spent 50,000 hours doing community service in the Ninth Ward, the area hardest hit by Katrina three years before. We began to rekindle the values and guiding principals of the company, the balance and benevolence between profits and responsibility, Shultz said.Then came the moment of truth, his $33-million speech.

It went as follows:We made the mistake in 07 and 08 of talking about millions of customers and thousands of stores, he said. Thats ridiculous. The moment of truth for Starbucks, and for all of you, is one customer, one Starbucks partner wearing that green apron, and that one experience based on the best-tasting coffee on the planet. We have to live up to that and overachieve, so they not only come back, but tell a friend.Store Managers can no longer be bystanders to anything we see. The world does not need Starbucks Coffee. Its completely discretionary. There are hundreds of places across the street that can provide coffee for a lower price.

A few months later, in response to quality concerns about the actual coffee, Schultz closed every store for retraining on how to make coffee.

EXECUTIVE SUMMARY

On a corporate level we are exceeding all expectations in regards to quality of both services/products and obligations to stakeholders. On the competitive and functional end we are nurturing relationships with farmers, employees and customers. Protecting the Starbucks Experience is of upmost importance, ensuring consistency with quality control and proper training.Externally we are succumbed to economic swings and intense competition but we leverage with our up to date technology and our socio-cultural and environmental awareness. Of the Porters 5 Forces, four out of the five are rated HIGH only leaving the bargaining power of suppliers at a MEDIUM.

EFE- weighted score of 3.15 with the highest weighted opportunity being the growth of the coffee market in the U.S. is expected to grow at a compound annual growth rate of 30%. The highest weighted threat is that prices for Arabica beans have doubled in price in the last year.

The average CPM scores of our competitors Dunkin Donuts and McDonalds are averaged 68% lower than our incredibly high rating of 3.61.

IFE highest weighted strength is that our net income increased by 24% during fiscal 2013.

Strategic alternatives- we need to everage the universal appeal of the Starbucks brand to penetrate new markets and push to normalize everyday consumption of starbucks premium roast coffee for every adult. We need to use the appeal of our social responsibility and fair trade practices as a selling point in our advertising campaign. We need to at least meet our competitors advertising expenditures, during 2013 we used around 1/10th of the capital as Dunkin Donuts.

We are in a strong competitive position in a market with rapid growth and need to take the opportunity at hand for market penetration, market/product development and backward integration.

With a deep analysis of the company we have come up with two important strategies to implement immediately. 1. Leverage the universal appeal of the Starbucks brand to penetrate new markets by expanding operations into China and India.2. Break free of stoic precedent and use high road advertising and direct ads to match competition.

Where did they start?Starbucks opened in 1971. Back then it was a single store in Seattles historic Pike Place Market; it is still open for business.In 1983 Howard Schultz, a Starbucks employee, visited Italy and instantly fell in love with the romance of the coffee experience and brought the idea home to the U.S.

I have tried to build the company that my father never got to work for, he said of his dream. Its the reason Starbucks was one of the first to offer full health benefits in 1988 to all full- and part-time employees.

What put them on the map?Theyve essentially become a place between home and work, a second home so to speak. Starbucks set out to be a different kind of company and still holds close to its values since opening. Starbucks strives to make a connection and provide the romance of the Starbucks experience with every single cup.

What core competency is of best value?STRENGTHS: Starbucks owns 75% of the domestic coffee market and its customers are extremely loyal and are more than willing to pay higher prices for the Starbucks experience.

STARBUCKS EXPERIENCE- is a unique blend of coffee expertise, product awareness, and customer service that has YET to be replicated by competitors!

Their commitment to the environment and CSR is unwavering. Partners are treated well with benefits annual average pay $34,028. Rated Fortune 100 Best Company to Work for. Employee turnover rate is an incredible 9%!

What is Starbucks currently doing?La Boulange May is global month of community service hosted by Starbucks

Today, with more than 18,000 stores in62 countries, Starbucks is the premier roaster and retailer of specialty coffee in the world

TIMELINE

1971first store in Seattle's Pike Place Market (just sold coffee beans)

1984Howard Schultz (employee) convinces founders to test the COFFEE HOUSE concept and sold its first latte. (6 stores)

1987Schultz bought Starbucks chain (17 stores)

1988Offers FULL health benefits to all employees (33 stores)

1992SBUX INTIAL PUBLIC OFFERING! (165 stores)

1996Opens store outside of U.S. in Japan (1,015 stores)

1998Extends Starbucks brand into grocery stores and launches Starbucks.com (1,886 stores)

2000Howard Schultz steps down as CEO (3,501 stores)

2001Implements ethical coffee sourcing guidelines- partnership with conservation international (4,709 stores)

2003Acquires Seattle's Coffee Company (7,225 stores)

2008Schultz RETURNS as CEO (16,680 stores)

2009Introduces "skinny" line of drinks, health conscious choices that don't affect prices

HISTORY AND EVOLUTION

Starbucks locations serve hot and cold beverages, whole-bean coffee, micro-ground instant coffee, full-leaf teas, pastries, and snacks. Most stores also sell pre-packaged food items, hot and cold sandwiches, and items such as mugs and tumblers. Starbucks evening locations also offer a variety of beers, wines, and appetizers after 4pm. Through the Starbucks Entertainment division and Hear Music brand; the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores.

Starbucks originated in Seattle, on March 30, 1971. It all started when a roasting entrepreneur, Alfred Peet, inspired three college friends to sell high-quality coffee beans. At first, they had the idea to name their coffee houses the Pequod (the ship in Moby Dick). After voting, this name was denied and instead it was named after that ships first mate, Starbuck.

At first, the company sold just coffee beans and brewed coffee for customer testing only. By 1984, Starbucks operated six stores in Seattle and finally introduced espresso coffee for sale, 13 years later.

Howard Shultz, a former employee, bought the Starbucks chain in 1987, and Starbucks quickly began to expand.In 1992, Starbucks administered its IPO. By September 1993, the EPS had risen 70% than the previous year. The number of stores doubled within the next two years.

After a trip to Italy to find new products, Schultz realized an opportunity to bring the caf community environment he found in Italy to the United States and the Starbucks brand we know today began to take form. In 1996, they bought 150 stores of Seattles best coffee for $72M.In 2008, Starbucks introduced a loyalty program that has been wildly successful. When they began their beta testing the mobile app and stored value system in which consumers can pay with their phone with pre-paid funds.

Now Starbucks is the largest coffee house company in the world with over 19,000 in 62 countries but Howard Shultz fights to keep the small town feel and its success not to dilute the companys culture and the Starbucks experience.

In fiscal 2013 had more than 3 billion visits to its stores. In 2009, Starbucks made the move toward health conscious choices that doesnt affect prices. It started selling salads and pastries without high fructose corn syrup and artificial sweeteners. The skinny line of drinks, offers low calorie and sugar free versions of most popular drinks using skim or soymilk. They also have choices of natural sweeteners like sugar in the raw, agave syrup, or honey. Starbucks even began to post calorie counts for drinks and baked good.MISSION AND VISION

Our mission: to inspire and nurture the human spirit one person, one cup and one neighborhood at a time (7) (8).Were passionate about ethically sourcing the finest coffee beans and roasting them with great care while improving the lives of people who grow them (6). Our business leads the sustainability model by leveraging technology to deliver consistent satisfaction to customers and shareholders alike (4)(5). Our associates are partners, not just employees, because our work is not just a job; we share a common passion (9). When we are fully engaged, we connect with, laugh with, and uplift the lives of all who come into contact with our business. As we do business around the globe we show our customers we care and make our stores part of the community (3). The process starts with the promise of a perfectly made beverage, but our work goes far beyond that: its really about human connection (1)(2).

Starbucks current mission statement is as follows Our mission: to inspire and nurture the human spirit one person, one cup and one neighborhood at a time (Starbucks: About us). This is the heart and soul of this corporation; this is what we feel makes Starbucks special, what has made us stand out and what will be the driving force behind future success, if we can keep this goal in mind. With Starbucks we are not just trying to sell coffee, were selling a great atmosphere, friendly service, and the greatest coffee we can for the customer, each unique individual, getting the unique Starbucks experience that nourishes the body and soul. One major goal of Starbucks is to focus on our coffee. It has always been, and will always be, about quality. Were 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. (Starbucks: About us) This starts with how we get our coffee beans. Starbucks only buys some of the highest quality beans that meet our standards. Each coffee bean requires a unique balance of temperature and time to reach its individual peak of aroma, acidity, body and flavor. (Starbucks: About us). It is also important that as a responsible corporation that it is our goal to improve the lives of those who grow our coffee beans. This is our social responsibility and Starbucks only buys beans that are handled ethically. Measures evaluated by third-party verifiers help protect the rights of workers and ensure safe, fair and humane working and living conditions. Compliance with minimum-wage requirements and prohibition of child and forced labor is mandatory (Starbucks: About us). Our coffees are classified by three roast profiles Starbucks Blonde Roast, Medium Roast and Dark Roast. Our blonde roast has a nice mellow smooth taste this is our lightest brewed coffee. The medium roast is the perfect in between roast. It is not too strong and not as light as our blonde roast. Starbucks added the dark roast blend in 1971 and its been booming ever since. This coffee has a bold robust flavor that will get you going anytime of the day. We also have 11 dark roast flavored brews for any customer who wants a strong taste to choose from. We have made one of our main goals to be environmentally friendly. This includes reducing environmental impact as much as possible. We built more energy efficient stores and try our hardest to conserve resources, such as water. In 2008, we set a goal to reduce electricity use by 25 % in company-owned stores by 2015. Since then, weve implemented a number of energy initiatives and have seen electricity use decrease by a total of 6.5% (Responsibility: Starbucks Corporation). We are installing ENERGYSTAR qualified equipment to help us reach this goal. We also help assist our farmers to run their business in the most environmentally sound way. We do this by having farmer support centers that can work with the farmers one on one with any help they may need and to help manage their business the best they can. We find it our global responsibility to make an impact on anyone we can and especially with our own partners in business. Here is some good news for coffee enthusiasts: Starbucks will continue to beat the competition with an updated product pricing strategy. Starting May 10, Starbucks will lower their prices on bagged coffee by 10 percent. The 12-ounce bag of coffee will drop from $9.99 to $8.99 (Pricing strategy:Cleari). We need to keep up with our competition, last year Dunkin Donuts, Folders and Maxwell house proposed a decrease in prices also. Our cooperation is finding ways every day to help out our customer and ensure they keep purchasing our delicious flavors of coffee. 54% of Americans drink coffee every single day, we want to keep every customer of ours more than satisfied, 54% is a very large market! We not only try to keep our prices low for a good cup of quality coffee, we put a lot of time and energy into differentiating ourselves from the competitors. We make sure we have a comfortable place to come and sit and have your coffee and breakfast sandwich. We have the best and most advanced brewing equipment. We also have a dimly lit store with comfortable furniture for customers to lounge around and also we always have a light jazz soundtrack playing to soothe the ear while enjoying your hot cup of Joe. We are not only focusing on coffee drinkers, we are turning our attention more and more to tea drinkers also! Starbucks (SBUX), the company that reinvented the modern coffee shop, is turning its attention to another venue: the teahouse. Last year the 19,000-cafe giant acquired Teavana, a chain of mall stores that sell tea and teaware. On Oct.24, Starbucks opened the first Teavana tea bar on New Yorks Upper East Side. It plans to open 1,000 stores in North America within 10years (Wong). We also think tea can help our business globally. The British consume 3 times the amount of tea Americans do in one year. We have a huge enthusiasm for the tea market it is a 90 billion dollar global market. The companys market cap has grown from $5 billion in November 2008 to over $57 billion today, underlining the 948 percent increase in Starbucks share price since then (Rudarakachana). Currently tea sales only consume about 3% of Starbucks overall business, but we plan over the next few years to keep this number moving up. The tea market has grown 32% since 2007, we have jumped on this trend by not only acquiring Teavana but also expanding our existing tea the Tazo brand. Iced tea is available in green, black, or passion options, sweetened or unsweetened, with a variety of flavor additions offered. There are also several different tea lattes, available iced or hot, and even a green or chai tea based Frappuccino. Just ordering a Tazo tea bag with hot water is one of the least expensive beverages on the menu, and many different varieties are available (Sahagian).We consider ourselves a great employer. We offer part time employees full benefits. Their package would include, health, medical, dental, vision and a 401k plan. If this is not enough we also extend these benefits to same and opposite sex spouses. We also help employees partners going to school. Starbucks U will help reduce out-of-pocket expenses for your education regardless of where you are in your career or academic journey. We offer discounts and savings on textbooks, tuition, technology, and more (Starbucks: About us).

CURRENT STRATEGIESCORPORATE LEVEL

At the corporate level we focus on the coffee that they sell, the coffee house experience for the customer and being socially responsible while doing so. Their strategy is to sell more coffee than their competitors by having a superior product and a superior experience that will drive sales and ultimately more profits.Starbucks Business strategy- Starbucks business strategy is to backwards integrate effectively to control all aspects of growing and producing the coffee beans and coffee. This is to control the quality and costs of the product. As well as to help improve the lives of those who grow their coffee. They also have made it their plan to focus on service and atmosphere of every Starbucks this is to ensure that each guest gets a personalized experience that will build loyalty. And both the service and the quality of there coffee is heavily reliant on the skills, and morale of their employees. Their strategy is to maintain employees longer and keep them more motivated by treated the employees better. The CEO explains that that providing benefits to an existing employee for a year cost half as much as training a new employee. (Larimore) By having a strong team Starbucks has pushed for high standards for making and serving their coffee.

FUNCTIONAL LEVEL

Strategizing at the functional level include the need for management to train all employees to a very high standard, In order to maintain the high quality of their coffee. Each bean is selected only if it is of high quality. In stores the employees are trained to double brew the coffee and add a very precise about of ingredients such as milk and sugar. The in stores experience is planned to be customized by writing the name of each customer onto the cups. The strategy is to keep the retail stores clean and inviting. In order to keep customers happy the plan is to constantly add new high quality menu items for their customers.Strategic consistency at Starbucks is attained by exceeding all expectations of consumers in regards to quality of both service/product and adhering to the obligations of the stakeholders. We feel that Starbucks is strategically consistent through all three levels of the business. The strategy is to have great coffee, through the backwards integration and investment in their employees they have been able to achieve this goal. They want a coffee house experience that is inviting which through their training and investment in the buildings at maintaining a level of service above and beyond their competitors.

COMPETITVE ENVIRONMENT FORCES BEYOND OUR CONTROLIt can be surprising just how many forces are actually outside the control of an entity yet exert a pressure that must be negotiated. Following are some of these forces:ECONOMICThis is perhaps the most broad and far-reaching of the forces. The economies in which we operate experience a variety of trends that directly affect our operations: inflation of the currency, recession, and unemployment to name a few. Every industry we must consider the economy in which it operates, but particular factors apply to us. First is the discretionary income of consumers, which is the amount of household income retained after basic living expenses have been paid. Discretionary income has a proportional effect on the amount of sales we can expect; the less discretionary income a family retains, the more likely they are to seek substitutes. The unemployment rate is a second important factor: as an entry-level employer we field job applications from students to professionals in times of high unemployment, increasing our bargaining power in wages paid.COMPETITIVEThe competitive forces are unforgiving and shift very quickly. As a vendor of specialty quality coffee and we are likely immune to many of the effects of Cost leadership is a effective strategy by our competitorsAdministration of the term, "Innovate or evaporate" is a strategy used at the corporate level down to the functional level. Starbucks is one of a kind.Competitive intelligence - These outside forces are important to us and our competitors; we must understand and measure them.

PORTERS 5 FORCES MODEL

One way to consider the forces affecting Starbucks is through the Porters Five Forces Model. We have determined the following perspective: Rivalry among competitors High: There are many distinctive competencies to develop in offerings, service, quality and consistency in our industry. The high margins of our primary products are especially attractive.

Potential Entry ofNew Competitors HighHigh margins earned on easy-to-prepare productWell established franchises are relatively simple to join

Potential Development of Substitute Products HighHot drinks such as tea While soda consumption is down, high-caffeine energy drinks are a booming substitute

Barg of suppliers Suffers from Starbucks high volume purchasing and storing capabilitiesStrengthened by the limited operations that conform to Starbucks' standards MEDIUM

Barg of Consumers HIGH Coffee is easy to prepare and available at nearly any food or drink establishmentDespite raving brand loyalty, customers are still price sensitive

ETHICAL AND LEGAL CHALLENGES

EXTERNAL FACTOR EVALUATION

COMPETIVE PROFILE MATRIX

Assessment of Alternative StrategiesSWOT Analysis

Space Matrix

Grand Strategy Matrix

Summary

Recommendations

Expand Operations

Leverage the universal appeal of the Starbucks brand to penetrate new markets (S1, O1)

Engage in Advertising

Break free of the stoic precedent and advertise in high-road, direct ads to meet competitors (W8, T2-T4)

QSPM

Implementation

We plan on implementing these strategies as soon as possible, to make sure our company grows and thrives. Our first strategy is to use our cash on hand to invest into foreign markets. This is particularly important in the fast developing countries, such as the BRICS countries. Although Starbucks is already in 60 countries including these markets they have plenty of room to grow. For instance looking at one of the most talked about and fastest growing economies in the world, China, Starbucks has only 851 stores and their economic growth rate is 7.4%. In a country with a population of over 1 billion and a geographic size close to the same size as the United States, Starbucks has plenty of room to grow. When comparing to our domestic strength Starbucks has over 13,000 locations this should be a model of the market share we should strive for in the China market as well as all foreign markets. Although this clearly has its challenges in order to implement this strategy it is important the Starbucks hires a team whose job it is to research and develop the best products for each specific segment. For example there should be a division of Starbucks devoted to the Chinese market. Doing the market research to determine what the average disposable income is and what the demand is for each of Starbucks products and services. This is crucial in determining the price point for each product. Determining what products that market is missing. For instance, in the Chinese market, tea is a larger portion of the menu than coffee. This does not mean to give up on coffee. Starbucks should launch an aggressive advertising campaign to spark up more demand for coffee in countries like China. We feel this will be affective because Chinas coffee consumption is up 90% since 2007.We also plan to grow immensely in India where we only have about 50 stores and a population of 1.2 billion people. India also has a rising middle class and an economic growth rate if 4.7%. In the next 3 years we plan to open 3 times as many stores in China and 10 times as many in India. China will have a grand total of 2500 stores at the end of the 3 years and India will have 500. By year one, we will have 500 new stores open in China, about 10 per week. India in year one will have 104 new stores, 2 per week. Year 2 China is getting 550 new stores (11 per week). India will increase to 156 stores in year 2 (3 per week). Year 3 China will get approximately 700 and India 208. The average cost for each new building is 450,000. With the 2,218 stores we want to build construction will cost $998,100,000. We plan to spend a good amount of money on marketing in each place to show how aggressive we are. We will be budgeted A grand total of $110,900,000. Equivalent to about $50,000 per store, the total cost for all of our training is the same. The total cost of our new project is $1,218,900,000. We will keep the same ratios Starbucks already uses to pay for it. We will pay for this with 50% raised capital stock, 20% cash on hand, and 30% debt. Common Considerations

Thorough research needed for intended marketsConstruction costs per store, including "encouragement"Consistent training and management Raising capitalInternational issues/regulationsEvaluation

Closing Remarks

Overall Starbucks has maintained a competitive advantage bringing gourmet coffee choices to the masses. In order to stay competitive SBUX will need to continue focusing on its core competencies to avoid losing its greatest asset "the Starbucks experience". As competitors try to imitate, SBUX will need to massively increase advertising, even if only for PR reasons. The world should know what a great company Starbucks is and strive to model after a corporation so ahead of its times in social and ethical responsibility since its start in the 70's.As a company that has been the industry leader since its conception, its strength lies in the brand and enhancing the connection to their loyal customers.