Starbucks Trading Strategy Analysis

Overview

Starbucks was originally opened in Seattle Washington. The stores originally only sold whole bean coffee and high quality coffee brewing equipment. When Howard Schultz joined the company almost a decade after the company was formed he convinced the original owners to establish a new location with an Italian style espresso bar. The new location was a success and the new retail concept was formed. This concept was the creation of the coffee house which could be used by members of the community as a meeting place where excellent coffee and ideas could be shared (Kembell, 2002). By transforming the way individuals consumed coffee, coffee itself was transformed from a breakfast drink to an experience that both new and existing customers are willing to enjoy.

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Howard Schultz vision of an Italian style coffeehouse would excel in the global market. That vision combined with the drive for excellence catapulted Starbucks onto the Fortune 500 list in ten years. Its focus on positioning the company as the dominant retailer, roaster and brand in North America allowed it to grow while remaining true to the original values of the company (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

An additional strength of the company is the wiliness to innovate the company to maintain its competitive advantage. In the fall of 2003 Starbucks introduced the Duetto card which combined the benefits of a credit card with the convenience of a Starbucks Card. Customers who use the Duetto card to purchase items in other retail locations would earn 1% of the purchase price in Starbucks dollars that would be loaded onto the Starbucks portion of the card. This partnership with Bank One is an example of the innovative actions taken by the company to enhance their customer’s satisfaction (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

Through excellent strategic planning and ambitious goals Starbucks has increased the number of both company-operated and licensed stores in over thirty countries. Starbucks has become one of the leading companies in the world excelling in the production and distribution of coffee products as well as emphasizing their commitment to their partners and the environment (Kembell, 2002).

Starbucks’s strategy for their company has always been designed to increase the size of the company while providing the highest quality coffee and coffee based drinks to their customers. Their commitment to growth can be seen in its increased number of stores in both the United States as well as in many international locations. One of its stated goals is to become the premium supplier of high quality coffee throughout the world. Its policies have promoted this goal and the company has grown from five stores selling whole bean coffee and high end brewing equipment to being a globally recognized company with locations in thirty countries selling both the original products as well as high quality espresso based drinks and other coffee related products (Kembell, 2002).

While its core strength has been the production of premium quality coffee and innovations in the technology required for coffee based equipment they have been innovative in developing new products as well as entering into new markets. To ensure that the high standards that Starbucks demands were being met the company integrated their operations both horizontally and vertically (Kembell, 2002). The horizontal integration can be observed in the strategic acquisitions, creation of valued partnerships as well as the joint ventures entered into with other corporations and non-profit organizations. The vertical integration can be observed in the opening of new roasting plants as well as controlling the distribution process of their products.

Company’s Strategies

In order to understand a company’s strategy the actions and approaches of the business must be analyzed to form the pattern of the company’s strategy. These indicators are gaining sales and market share, responding to changing market conditions and other external circumstances, entering into new geographic or product markets or exit existing ones, merge with or acquire rival companies, form strategic alliances and collaborative partnerships, pursue new market opportunities and defend against threats to the company’s well-being, manage research and development, production, sales and marketing and other key functions, strengthen the competitive capabilities and correct competitive weaknesses as well as to diversify the company’s revenues and earnings by entering new businesses.

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By analyzing these actions taken by the company a detailed strategy followed by the company can be discovered. In this paper each category shall be examined individually to determine the actions taken by the company, the business reasons for either taking or not taking those actions, as well as the effectiveness of those actions on the business.

Gain Sales and Market Share

Starbucks focus on quality beverages and environmentally sustainability has assisted the company in gaining sales and increasing their market share. Starbucks does not require fancy add campaigns to sell their product using instead the word of mouth advertising of loyal customers and the promotion of their environmental programs. While Starbucks has a marketing budget it is used to advertise new promotions and for when new coffees are offered for sale. The Starbucks mission statement is broken down into six categories including:

  • Provide a great work environment and treat each other with respect and dignity
  • Embrace diversity
  • Apply the highest standards to coffee
  • Develop enthusiastically satisfied customers all of the time
  • Contribute positively to our communities and the environment
  • Recognize that profitability is essential to the future success of the company

Using these principles as the guide post for all company decisions Starbucks has experienced exponential growth (Kembell, 2002). From 2002 to 2004 the revenues of Starbucks Coffee Company show a 58% net revenue growth. They reported their first billion dollar quarter and debuted on the Fortune 500 List. Their reserves of cash and equivalents tripled during that time period and they added 2,683 new stores around the globe (Kembell, B.; Hawks, M.; Kembell, S.; Perry, L. Olsen, L. 2002). Their growth also includes increases in net earnings; in 2002 the net earnings were 213 million dollars while in 2004 they exceeded 390 million dollars.

This growth has influenced Starbucks plans on opening 1,500 new stores in fiscal year 2005 bringing year end total over 10,000 stores world wide. In the United States the company plans to open 500 company-operated stores in addition to 525 licensed stores. They also plan on opening 100 company-operated stores in international locations and 325 licensed stores (Kembell, 2002).

Looking forward to 2005 Starbucks expect an increased earnings per share of $1.12 to $1.15 which would be equivalent to a 20 to 25 percent increase in growth. The company is also in a position where they will be able to finance the new projects for 2005 with money that had already been earned eliminating the need to take on debt to finance their expansion plans (Kembell, 2002).

In order to meet those goals Starbucks has taken steps to improve the quality of their coffee products. By improving the supply chain and creating preferred supplier criteria Starbucks can control both the environmental impact that their growth has as well as ensure that the coffee sold is the highest quality possible.

Starbucks is also looking at various partnerships that will increase the impact of the brand name. In order to protect the brand organizations that want to become a partner of Starbucks must meet several criteria. They must be environmentally friendly, have good labor practices with employees in any country that they do business in and make positive contributions to their communities.

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Response to changing market conditions and other external circumstances

In response to the falling coffee prices on the commodities market Starbucks has increased their commitment to the creation of a sustainable coffee production while promoting the increased quality of the coffee sold in Starbucks locations. Starbucks has continually paid premium prices to the farmers growing the coffee sold in Starbucks locations to ensure that the highest quality coffee is available (Starbucks Corporation, 2004). These premium prices allow Starbucks to provide financial support to them and allowing the farmers to make a profit off of their crops. In addition to the price paid per pound Starbucks has also paired with several non-profit organizations to promote the purchase of economically and environmentally sound coffee (Starbucks Corporation, 2004).

One way in which Starbucks was able to control the quality of the coffee bought as well as assisting the coffee farmers the Coffee and Farmer Equity (C.A.F.E.) practices were developed. These practices are a set of environmental, socially and economically responsible coffee purchasing guidelines that evolved out of three years of work and the contributions of many individuals (Conservational International). As the practices were developed they were tested in several coffee growing regions and there adapted to be effective in other countries.

In order to convince the farmers to commit to those practices that would provide environmental assistance as well as produce the highest quality of coffee could apply for preferred and strategic suppliers for Starbucks. The first Farmer’s Support Center was built in Costa Rico in 2004 which allows the collaboration of the company and the farmers in addition to the technical support and training that will assist in the sustainable production of high quality coffee (Starbucks Corporation, 2004).

A second method of focusing on environmentally sound practices was the purchase of conservation and certified organic coffees. A coffee can only be certified organic if it is grown without the use of synthetic pesticides, herbicides or chemical fertilizer. By eliminating theses contaminates from the growing process the purity of the soil and groundwater will be maintained (Starbucks Corporation, 2004). Starbucks paired with Conservation International which is a non-profit organization designed to protect the world’s biodiversity by encouraging small-scale farmers to use the traditional methods for growing their coffee. Two coffees offered for sale that meet this requirement are the Serna Organic Blend and the Organic Shade Grown Mexico Blend (Conservation International).

The third non-profit organization associated with Starbucks Coffee is TransFair USA which is the only organization in the United States allowed to certify Fair Trade products. By associating with this organization Starbucks can insure that the farmers are fairly compensated for their crops through economic transparency (Starbucks Corporation, 2004). While this agreement was reached in 2000 as the success of the agreement was seen throughout the company additional pounds of coffee with the Fair Trade label were purchased amounting to 1.6% of the total coffee bought by Starbucks (Kembell, 2002).

In addition to the focus on sustainable coffee production Starbucks has also paired with members of the communities in which coffee is purchased to increase the social contributions. Starbucks has helped build schools, hospitals and provide clean sources of water to these communities. (Starbucks Corporation, 2005).

While the sustainable sourcing of coffee is of great importance to the future success of Starbucks, they have also explored the sustainability of the other products such as dairy, coco and other food products. In the concern over growth hormones being included into the dairy products Starbucks started collecting research into whether or not suppliers can provide the dairy products required without the use of the bovine growth hormone (Starbucks Corporation, 2004). This research will be analyzed in 2005 once the research has been fully collected.

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Enter new geographic or product markets or exit existing markets

When Starbucks entered new markets it has used a strategy that tends to go against the traditional methods of expansion (Kembell, 2002). In the traditional retail markets stores from the same chain were not placed in similar geographic areas because of the risk of cannibalization of the existing stores. Starbucks has followed the trend of clustering their stores together in the chosen area. This strategy has allowed them to increase their total revenue and market share as well as increasing their dominance in the market (Kembell, 2002). The placement of their stores also decreased the delivery cost of supplies to each location. The increase in the company’s size has allowed the company to absorb the loss caused by the cannibalization.

Starbucks stores can be found in North America, Latin America, Europe, the Middle East and the Asia Pacific regions. In these regions Starbucks is located in thirty countries. In every location Starbucks finds community projects that will assist their new neighbors (Starbucks Corporation, 2004).

Starbucks has been most prolific in North America with stores in both the United States and Canada. While the majority of communities enjoy Starbucks presence and actions in their communities a store is occasionally not profitable enough to continue its operations. In cases such as one of the stores located in Harlem the community combined with Starbucks management team attempted to find alternative locations for the store and maintain their presence in the community (Starbucks Corporation, 2004).

As the expansion of the company has continued throughout Latin America locations include Mexico, Chile, and Peru.

In the European market Starbucks has opened 670 stores in more then 15 countries. These stores provide an estimated 9,000 jobs and the purchase of more Fair Trade products by consumers in this market. The most recently opened store in the Opera district of Paris (Starbucks Corporation, 2004). This store will allow the further growth in the French market.

The Asia/Pacific region extends from Japan to Australia including nine other countries. In this market the first Fair Trade coffee from East Timor the Timor Lorosa’e blend was offered and while the coffee is only offered in East Timor currently Starbucks plans for the coffee to be offered throughout the Asia/Pacific region as its production allows (Starbucks Corporation, 2004).

Merge with or acquire rival companies

There are several competitors that affect Starbucks market share. The traditional coffee shop companies include Second Cup, Coffee People, Java Central, and Caribou Coffee. As Starbucks is entering the retail grocery store chain Starbucks must also compete with the manufacturing companies that can promote their coffee in those stores as well. These manufactures are Kraft who produces Maxwell House, Procter and Gamble who produce Folgers and Nestle (Kembell, 2002).

While these competitors pose a risk to Starbucks the largest competitors could be McDonalds and Denny’s. Should these chains increase the quality of their coffee products and maintain a lower price then Starbucks they could pose a significant risk to Starbucks’s market share (Kembell, 2002). McDonalds has started to redesign the layout of their stores to increase the amount of time that an individual would spend in their stores. These locations would be known as the McCafe in which free internet access would be available as well as higher quality coffee (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). As these locations become more prevalent in various regions portions of Starbucks customers could be lured away. In order to compete additional changes and modifications to Starbucks policies and practices will be needed to maintain their share of the market.

In 2003 Starbucks did acquire Seattle’s Coffee Company a coffee company based out of Seattle which included the Seattle’s Coffee brand as well as Torrefazione Italia coffee brand. In 2004 Starbucks signed an agreement with Borders Books and Music to open more then 400 Seattle’s Coffee Company in participating stores. While there are many other competitors that Starbucks has not acquired or formed licensing agreements with this acquisition of Seattle’s Coffee Company allows them to increase their presence in additional markets (Kembell, 2002).

It was initially believed that smaller chains of coffeehouses would merge in order to compete more effectively against Starbucks. As of 2003 none of the competing coffee shops had merged, however, the number of coffee shops has increased as other retailers attempted to gain a share of this market (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

Form strategic alliances and collaborative partnerships

Over the course of Starbucks’s history they have taken advantage of the benefits for growth that could be achieved through partnerships with other companies. Starbucks will consider a partnership based on several factors including expertise in their field, an environmental focus and social responsibility toward their employees. Several partnerships include PepsiCo formed in 1994 to promote the manufacture and distribution of coffee drinks, bottled Frappuccino coffee drinks and the DoubleShot coffee drink. The partnership with Pepsi was designed to introduce Starbucks products into a more mainstream audience.

This was a calculated risk because populations other then Japan historically were not receptive to the idea of cold coffee beverages (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). Schultz was hoping that these beverages would enhance the brand by appealing to a wider customer base. Through continued experimentation the concept of creating a bottled product based on the popular Frappuccino drink was formed and provided to the public (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). When the bottled Frappuccino was tested in a new market the sales exceeded the projections by 10% and 70% of the sales were repeat customers. The company believes that the partnership with Pepsi specifically the bottled Frappuccino product could exceed one billion dollars (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

The partnership with Dryer’s Ice Cream allows a premium quality of coffee flavored ice cream to be provided to grocery stores. Through this partnership Starbucks agreed to provide coffee extract to Dryers for its inclusion into a premium quality line of ice cream flavors (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). This line includes flavors such as JavaChip and Café Almond Bliss. The line would be marketed in grocery stores under the Starbucks brand name. The product was offered for sale in 1995 and by July of 1996 it was the best selling brand of coffee ice cream in the grocery stores (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

The TazoTea line is a partner which provides tea products to Starbucks customers. The Torrefazione Italia Coffee Brands provide high quality coffee brewing products to the Starbucks customers (Kembell, 2002).

Starbucks has also created licensing agreements with several companies. In these licensing agreements Starbucks receives both a licensing fee as well as a royalty on all sales. The licensing agreement with Marriott allowed Starbucks to serve customers in airport locations as well as in Marriott hotels. The licensing agreement with Aramark Food and Services provided locations on university campuses (Kembell, 2002).

In 1995 after months of negotiations over concerns with product quality Starbucks and United Airlines formed a partnership to serve Starbucks Coffee on their flights. While in 1996 a partnership was formed with Nordstrom’s for them to sell an exclusive blend of Starbucks coffee for sale. Later on in that year a partnership was formed with Barnes and Noble for the creation of coffee bars in the bookstores which enhanced the customer’s book buying experience and increased the reputation of the Starbucks brand (Roseberry, 1996).

In 2004 Starbucks paired with Conservation International to help protect the biodiversity of the world and to improve the livelihood of the coffee farmers. This partnership has helped to protect the diverse regions. In 2004 Starbucks agreed to provide a 2.5 million dollar loan to the Verde Ventures Fund. This money will be used to provide debt and equity financing to small and medium sized business that are located in the Conservation International priority areas (Conservational International).

In 2004 Starbucks Coffee International also paired with Partner Grupo Vips a French company in order to open the first store in France. This collaboration will allow the traditions of Starbucks to merge with the coffee traditions of France. In addition to the partnership with Partner Grupo Vips a similar partnership was also formed with Les Restaurants de Coeur a non-profit organization that helps feed the homeless and initiates projects that will increase the social standing of those in need (Kembell, 2002).

Pursue new market opportunities and defend against threats to the company’s well being

Starbucks opened 634 company-operated stores and 710 licensed stores in fiscal year 2004 with the plan to open 1500 in fiscal year 2005. With the opening of each new store several positive actions were created by the new stores. These actions included the introduction of new consumers to specialty coffee, creating the coffee house culture in the US, and as Starbucks has expanded the numbers of independent coffee houses have also increased stimulating competition (Kembell, 2002). With the increase in competition consumers receive additional benefits including more choices, the creation of new jobs, and neighborhoods gain increased places to gather with friends and family.

There was also an increase in international markets with the opening of the first store in France which opened in Paris during 2004. In addition to stores already present in 30 other countries. Starbucks intended to open stores in over 60 countries by the end of 2005 (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). The total number of stores is expected to reach 10,000. The largest market for these stores is believed to be China. This belief is based on the response to Starbucks from individuals in Asian countries combined with China’s growing population (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). With the increased commitment to expand internationally not all of the international locations are creating a profit for the company. Stores located in Japan and Britain are among the locations that are creating losses for the company (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

Starbucks has developed a joint venture between Johnson Development Corporation created by “Magic” Johnson known as Urban Coffee Opportunity (UCO). Because of this partnership Starbucks is brought to diverse communities. At the end of 2004 73 UCO stores in various communities in the US with more then 1,000 partners employed at those locations.

As with any large corporation Starbucks has had several lawsuits brought against it in various jurisdictions. The Center for Science in the Public Interest plans on filing a lawsuit against Starbucks alleging that the high-fat, high-sugar products promote cancer and obesity. A class action lawsuit was also brought by baristas in California who believe that the tip sharing policy among the baristas and shift supervisors is unfair. This lawsuit has far reaching implications for the company because the addition of the tip money is a large incentive for the hourly employees to provide the exceptional customer service that Starbucks is known for.

From 1985 to 1992 employees working for Starbucks in the retail stores and the roasting plants were represented by a union. The partners felt a disconnect between the management and the requirements of the store (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). Howard Schultz believed that by providing health insurance options for partners who worked at least twenty hours a week would decrease the turnover experienced at the stores and increase the level of partner satisfaction (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). Schultz believed that by providing for the partners basic needs would increase their loyalty to the company. This loyalty would be demonstrated through the increased service provided to each customer, which would increase the customer loyalty to the brand (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

The baristas in each location are responsible for knowing how to make each drink according to the standards provided, maintain the cleanliness of the store and provide a welcoming environment to each customer. This is done through recognition of regular customers by drink, name or both and conversations between each customer and the barista. Maintaining this environment is essential to the success of the company and a high turnover decreases the satisfaction of the customer who is no longer recognized and treated as an individual until the new partner is trained. Providing health care costs the company 1500 dollars per partner while training a new partner costs the company 3000 dollars (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). This is a cost effective way to decrease the turnover of partners while providing a necessary benefit that too many individuals do not have access to.

In 1991 Starbucks also created an Employee Stock Option Plan that provided employees with a discounted purchase price for Starbucks stock. This plan was designed to turn the employees into partners by allowing them to share in the success of the company (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). As the partners experience a monetary reward for their part in the success of the company they will be motivated to exceed the customer’s expectation by providing legendary service. How much stock the partner would be eligible would be based on their salary from the prior year. The plan was presented to the board in 1991 and became part of the benefit plan when Starbucks became a public company.

The success of the Employee Stock Option Plan influenced the company to create an additional way for the partners to share the success of the company. With the creation of the Employee Stock Purchase Plan allowed partners to contribute up to 10% of their paycheck to the purchase of stock through the company. In fiscal year 2003 more then 5.6 million shares had been issued to partners through the plan since the program was created (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). While not every partner participates in the plan more then 11,000 partners participated in the plan. Additional policies were added that increased the benefit package of Starbucks partners. Some of these include: 401(k) retirement plan in which the company matches 25 to 150%, 30% product discounts, life insurance, short and long term disability and health benefits to domestic partners (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

After this policies were created the turnover for Starbucks employees dropped below the average of other retail stores. The percentage of turnover in other retail store environment ranges from 150 to 400 percent while the turnover percentage at Starbucks averages about 65 percent (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). These policies allow Starbucks to create an environment for their partners that promotes the longevity of the partners. This retention allows the company to spend more money on increasing the size and geographical areas that they serve while maintaining the connection between the active store partners and their customers. Without this interaction Starbucks would not be as large or successful a company as it has become.

Manage research and development, production, sales and marketing and other key functions

Starbucks has committed to offer the customer the highest quality beverage possible. Because of this commitment the coffee beans are never artificially flavored since it is believed that flavoring the beans would pollute the pure flavor of the coffee (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). An additional concern initially was making lattes or cappuccinos with non-fat milk. When the research and development team conducted taste tests the flavor profile of drinks made with nonfat milk were not to Starbucks standard (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). The debate on whether or not this type of milk should be offered to customers caused consternation throughout the company. Starbucks was forced to choose between pleasing the customers and maintaining the commitment to quality that had created the Starbucks reputation (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005).

Learning from this experience Starbucks has continued to maintain the innovation and creativity that created the Starbucks culture as new drinks and new products are developed for sale in the company stores. In 2004 the Frappuccion Light Blended coffee beverages in the North American Market focusing on the health concerns that customers had voiced (Starbucks Corporation, 2004).

Currently in research and development is a chocolate based drink known as Chantico. This chocolate drink is the equivalent of a melted chocolate bar that is drunk, the marketing plans intend to describe it as an indulgent dessert. With this product Starbucks is hoping to increase the number of customers that are served in the afternoon and evening with the marketing of this drink (Starbucks Corporation, 2005). The secondary aspect of this new drink is the increase of the product line to include non-coffee based drinks. The Frappuccino was highly successful when it debuted in the stores increasing the market share and the company believes that they can experience the same success with this chocolate drink (Starbucks Corporation, 2005).

In marketing a new training program was created known as the Coffee Master program which was designed to increase the education of store partners in the differences in taste depending on the regional location. This increase in education allows the partners more information to connect with their customers over coffee. This education will be paired with the new marketing program that is in the progress of being developed for 2005 that will be known as “Geography as Flavor”. In this promotion the flavor lock bags will be redesigned from different colors to simple white bags with the coffee growing region clearly marked (Starbucks Corporation, 2005). This marketing plan will focus on the quality of the beans combined with the experience of the store partners to increase the coffee bean sales rather then focus on the price differential.

Starbucks has also focused on the creation of a preloaded card that can be used by customers to pay for their drinks and other merchandise. These can be used to streamline the companies’ sales and increase the connivance of the customers (Starbucks Corporation, 2005). The card will also allow customers to purchase it as a gift increasing the satisfaction of the customers.

In the area of sales Starbucks has maintained a fast pace of growth while maintaining solid earnings and returns (Kembell, B.; Hawks, M.; Kembell, S.; Perry, L. Olsen, L.2002).

Strengthen competitive capabilities and correct competitive weaknesses

By establishing control over the distribution channels Starbucks was able to maintain the quality of the coffee beans served and sold in the store environment. They established this control over their distribution by creating purchasing guidelines for their suppliers to follow (Starbucks Corporation, 2004).

Starbucks also has consistently responded to market and consumer demands to remain a competitive force in the specialty coffee business. This willingness to change to meet their customers needs has enhanced there brand name throughout their sales markets. Some of these changes included finding new strategic partners to increase the distribution outlets for Starbucks products as well as expanding the product line into grocery channels to include Frappuccion coffee drinks and coffee ice cream (Starbucks Corporation, 2004).

As the company grew the need for modifications to be made in the Starbucks stores to better serve the needs of the community. These modifications were across the board including the ambience, products offered, drive through service at some locations and the exploring different types of retail locations in the placement of new stores (Starbucks Corporation, 2004).

These modifications allowed Starbucks to increase the 3rd place environment in the stores. By enhancing the environment of the stores customers will increase the amount of time spent in the stores. The increased time spent in the stores will also increase the incremental sales of Starbucks products and could also increase the sales of Starbucks partners such as Hear Music or T-Mobile (Kembell, 2002).

Diversify the company’s revenues and earning by entering new businesses

In 2004 several new products were created for sale in other retail channels. Tazo and Kraft foods came to an agreement that would allow Tazo to sell its line of teas in its grocery stores.

Starbucks also announced a partnership with Jim Beam Brands Co. to create a market a premium blend of Starbucks-branded coffee liquor outside of the Starbucks stores. While this partnership has the potential to become an area of increased profit for both companies Starbucks had to create marketing plans designed to inform the public that this product would not be sold in their stores (Kembell, 2002).

This partnership places Starbucks in a position to increase the number of consumers who buy their products by introducing them to a premium quality coffee liquor. This product is designed to be used in milk based mixed drinks which will enhance the flavor profile.

In 2004 Starbucks announced its new line of Black Apron Exclusive coffees with 100 percent Kona coffee. The Black Apron coffees are a line of rare coffees that are only available in limited quantities (Roseberry, 1996). This line is more expensive then the traditional line of coffee that Starbucks offers but allows customers a glimpse of new flavor profiles.

A new licensing agreement was announced between XM Satellite Radio creating a 24 hour Starbucks Hear Music channel increasing both the Starbucks brand name and the Hear Music Company. In addition to the agreement with XM Satellite Radio Starbucks opened a Hear Music media bar where musical CD’s could be burned while enjoying a cup of Starbucks Coffee. Stores with this ability are located in select stores in Seattle, WA and Austin, TX (Corporation, 2004).

Starbucks strategy for growth in 2004

In 1992 and 1993 Starbucks created a three year expansion program. This program required a city to be selected to act as a hub for the expected growth in that region (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). To support the projected growth additional resources that were vital to the operation of twenty or more stores were staged in the hub city (THOMPSON, A., STRICKLAND, A.J., GAMBLE, J., 2005). They were then responsible for the needs of the stores in the region and assisting in the expansion of the company into the surrounding areas. This initial strategy was so successful that Starbucks has continued this practice as they enter new geographical areas.

While this strategy does cause some cannibalization of the existing stores in most cases the added connivance, quicker service time, and better emphasis on customer service or legendary service as it is referred to in Starbucks terms increases the total number of customers served each day and maximizes the profits of each store.

Starbucks has a two-fold domestic strategy for increased growth in 2004. Their domestic strategy is to expand the numbers of stores throughout the nation. In order to do this a metro area is located that meets pre-set criteria and as many stores as possible are created to enhance the current market. As the metro area is saturated with stores the stores will expand into the suburban areas surrounding the metro hub.

Starbucks also focused on increasing the use of licensing agreements so that their stores could expand into additional markets where a company-operated store could not. These locations include universities, airports and hospitals. This allowed the company to increase the number of customers served throughout a geographical area. While this policy increased the number of stores available to the customers how the stores were located is sometimes rather odd. By entering shopping centers in two locations such as the standalone Starbucks as well as the retail grocery store in the same shopping area caused increased competition and some confusion with the customers. Also since these stores operated on different systems there is no way to transfer product or personal between those stores. Also if a customer had a problem with one of the stores both stores were affected since it is hard for the customer to understand while these stores were both considered Starbucks they were different classifications and different departments of the parent company.

In order to expand the number of stores in international locations Starbucks acquired small coffee house chains in promising locations that will support Starbucks growth and convert new customers to the Starbucks brand. By entering into licensing agreements with local companies with expertise in the retail business the operation of international Starbucks stores will be run with the same emphasis on quality. The partnering with retail companies located in foreign countries allows Starbucks to expand overseas with maintaining the standards of quality that are well-known around the world as synonyms of Starbucks.

The expansion plans that Starbucks follows is different depending on which type of location Starbucks has chosen to expand to. The stores in North America follow the hub city approach with company owned stores opened first and then followed by the opening of licensed stores. In international locations the licensed stores are opened first and then are followed by the opening of company owned stores. The difference in how the stores are opened takes these different approaches to maximize the effectiveness of the stores opening and take advantage of the various strengths of Starbucks as well as their partner companies.

Two Operational Competencies

Starbucks is an example of a company who has grown from the original store in the Pike Place Market in Seattle Washington to being a globally recognized company with company-operated and licensed stores in over thirty countries around the world. This increase in growth can be attributed to several strategies that focus on sustainable agriculture including environmentally friendly practices, the integration of technology with traditional farming methods, paying premium prices for premium quality coffee beans all of which results in the production and consumption of the highest grade coffee available to the public.

Starbucks has two operational competencies that work hand in hand to provide the highest quality coffee possible to their customers and protect the environment so that the coffee production will be sustainable throughout the years. The focus on these two competencies inspired the collaboration with TransFair USA, the certified organic and shade grown coffees for sale in Starbucks locations and the increased commitment to the farmers producing the coffee.

The Starbucks brand has grown throughout the years based on their commitment to quality. This commitment can be seen throughout the Starbucks supply chain as the specifications for coffee purchased by the company are increased and require verification by independent third party organizations. While the coffee farmers are well compensated for the added work necessary to ensure the quality standards are met many farmers do not meet their requirements. Therefore while Starbucks is well known for selling the highest quality coffee beans and are assisting many famers by paying premium prices per pound the average farmer does not benefit from the Starbucks Corporation.

The building of the Farmer Support Center in Costa Rico allows farmers and Starbucks purchasers to collaborate on efforts to increase the quality of coffee grown. The increased focus on quality has returned the farming of coffee to the traditional practices that create the high quality coffee beans as well as put into effect the environmental protections that sustainable coffee production requires. The partnership with CARE international and the implementation of C.A.F.E. practices allow Starbucks to monitor the working conditions, economic considerations, and standards of coffee produced by local farmers in most of the coffee producing countries.

Starbucks has built their reputation on maintaining their focus on the quality of beverages and coffee offered for sale in their stores. By increasing the amount of participation the company has in the production and growth of the coffee provided in their stores they can maintain their commitment and dedication to the quality of their product.

Starbucks has also focused on displaying corporate social responsibility through the protection of the environment and the positive contribution to the communities where Starbucks is located. Starbucks created an environmental mission statement and environmental best practices that is used to determine the effect business decisions will have on the environment. The environmental mission statement includes:

  • understanding of environmental issues and sharing of information with our partners
  • developing innovative and flexible solutions to bring about change
  • striving to buy, sell and use environmentally friendly products
  • recognizing that fiscal responsibility is essential to our environmental future
  • instilling environmental responsibility as a corporate value
  • measuring and monitoring our progress for each project
  • encouraging all partners to share in our mission

These practices are used throughout the entire company both national and internationally.

Starbucks has also increased the purchase and promotion of Fair Trade certified coffees more then doubling the amount of Fair Trade coffee bought from 2003 in 2004. Starbucks has also created an environmental committee focused on the conservation, protection and recycling programs. This committee is made up of store managers, regional directors and individuals with a strong background in environmental concerns.

In 2004 Starbucks dedicated six weeks to the education of customers about the importance of environmental awareness in company-operated stores located in North America. This period of education coincided with Starbucks joining of the United Nations Global Compact which is a group of international corporations, trade unions, U.N. agencies and non-governmental organizations that share a nine principles advocating environmental protection, labor issues and human rights.

Through this education and partnership with the United Nations Global Compact Starbucks can minimize the impact that their business has on the environment while increasing their customer’s awareness of the impact of the consumer choices on the environment. The purchase of reusable cups combined with a discount for the customer combined with various recycling programs such as the donation of used coffee grounds to customers allows the company to decrease the amount of their products that end up in landfills and other similar areas.

Difference in United States strategy vs. international locations

In the United States Starbuck can open company-operated stores in most markets without the assistance of a third party. Their stores can be found throughout the nation in metro areas as well as suburban neighborhoods. The company has focused on the diversification of their locations to better meet the needs of their customers. However in some situations Starbucks must use third party companies to enter into a new market. These markets include airports, universities and hospitals. In these cases Starbucks uses companies with strong backgrounds in retail management to operate those stores. Through these collaborations more locations can be opened and the Starbucks brand protected. Partnerships that have been formed in the United States are the partnerships with Marriott, United Airlines and Aramark Food and Services. These partnerships have expanded the Starbucks brand and products into new markets.

In the international markets the third party company is necessary because the entire country is a new market. The third party company allows Starbucks to enter the market and acclimate new customers to the brand. With the success of the licensed store additional company-operated stores can be opened. The company uses similar strategies for the opening of new stores both domestically and internationally, the difference arises because in the United States licensed stores follow the opening of company-operated stores while in international markets the company-operated stores follow the opening of the licensed stores.

This follows the historical pattern of Starbucks expansion. The company uses either the company-operated or the licensed stores to enter into new markets. Depending on the characteristics of the new market determines which type of store will be utilized to introduce Starbucks to that market. The company then selects a highly visible and high traffic area to open the first store. When opening the store in Paris they chose a location in the highly visited opera district. This allowed the maximum visibility of the product and increased the word of mouth response of the Parisians.

In all of their international locations Starbucks chooses strategic partners that will assist the brands new customers in visiting the stores. The location in highly visible locations with good access for foot traffic and automobiles increases the profitability of the store which will result in the eventual expansion.

If Starbucks follows the established procedure when that store proves successful additional stores will be opened in Paris and the company will gradually move throughout the country placing stores in various metropolitan areas. This will allow them to increase the profitability of the international stores and move closer to their goal of becoming the worlds finest and largest company selling premium grade coffee and coffee based beverages.

By saturating the metro market the individuals who work in the city become adjusted to the ordering changes and lifestyle adjustment that ordering coffee at Starbucks requires. By doing this when they move into the suburbs around the city the individuals who live there are excited that they now have a neighborhood Starbucks creating a loyal customer group on opening day. As more Starbucks are opened in that area more customers are able to patronize them and the business increases.

Starbucks also focused on increasing the use of licensing agreements so that their stores could expand into additional markets where a company-operated store could not. These locations include universities, airports and hospitals. This allowed the company to increase the number of customers served throughout a geographical area. While this policy increased the number of stores available to the customers how the stores were located is sometimes rather odd. By entering shopping centers in two locations such as the standalone Starbucks as well as the retail grocery store in the same shopping area caused increased competition and some confusion with the customers. Also since these stores operated on different systems there is no way to transfer product or personal between those stores. Also if a customer had a problem with one of the stores both stores were affected since it is hard for the customer to understand while these stores were both considered Starbucks they were different classifications and different departments of the parent company.

While focusing on the increase of licensed store locations Starbucks has also focused on avoiding any opportunity of franchising their stores. If a Starbucks were to be franchised then the focus of that store would be on the individual in charge of it rather then the corporation and the environmental and economic polices that are an important part of the Starbucks culture could be lost or watered down. While many fast-food companies allow their stores to be franchised such as Quizno’s and Coldstone Creamery the service and quality of food received varies from location and consumers are negatively affected by the difference. As the consumer receives poor customer service and inferior goods the customer finds alternative locations to visit and the company looses money.

This is why any company wishing to become a licensed partner is strictly researched and monitored to ensure the quality of the brand. The members of the board who maintain the quality of the Starbucks brand understand the difficulties in creating a positive franchise location with the continued emphasis on quality and customer service. By not allowing the company to be franchised the issue of poor customer service and quality of beverages were never an effect on the customer. The licensing agreements’ between the various companies and Starbucks are strictly monitored to insure that quality and customer focus is maintained by that company to preserve the Starbucks brand and increase the connivance of the customers.

In order to expand the number of stores in international locations Starbucks acquired small coffee house chains in promising locations that will support Starbucks growth and convert new customers to the Starbucks brand. By entering into licensing agreements with local companies with expertise in the retail business the operation of international Starbucks stores will be run with the same emphasis on quality. The partnering with retail companies located in foreign countries allows Starbucks to expand overseas with maintaining the standards of quality that are well-known around the world as synonyms of Starbucks.

Partnering with local companies is an integral part of the international expansion strategy as well as the creation of a new subsidiary known as Starbucks Coffee International to oversee the operations of international stores. This has allowed the company to expand into over thirty countries with more then 5,000 locations in these markets. This has increased the visibility of the brand while increasing the level of convenience experienced by the customers as well as increased the market share of the company.

The expansion of the company into the international locations is different then the expansion projects in the United States and Canada because the first location in a new international location is a licensed store rather then a company owned Starbucks. This allows the company to enter that market combining the expertise that Starbucks has with the expertise had by the foreign company to increase the success rate of these new stores. By asking for assistance the companies create a positive experience for both of the companies and the customer base. With the success of the first several stores in a new international location Starbucks will begin the placement of company-owned stores to increase the effect and the convenience available to the customers.

The expansion plans that Starbucks follows is different depending on which type of location Starbucks has chosen to expand to. The stores in North America follow the hub city approach with company owned stores opened first and then followed by the opening of licensed stores. In international locations the licensed stores are opened first and then are followed by the opening of company owned stores. The difference in how the stores are opened takes these different approaches to maximize the effectiveness of the stores opening and take advantage of the various strengths of Starbucks as well as their partner companies.

One of the similarities in both national and international locations is the effort to increase the effectiveness of community based support programs. These programs increase the awareness of Starbucks efforts to improve the communities that they have become a part of. This has the ability of creating more community awareness of the problem combined with the potential solution. When Starbucks opened the first store in France the community program the store paired with was donating food to an organization dedicated to helping the homeless with food and shelter. In Harlem the stores increased community efforts in cleaning up the neighborhood parks and the creation of more jobs with excellent benefits to individuals from a lower income neighborhood.

While Starbucks is focused on expanding to new locations they are also committed to helping individuals and communities improve the services available to the community. This concern with the community reflects the Starbucks mission statement of treating everybody with respect and dignity. The company wants to help those individuals who can not help themselves not because they will become customers of Starbucks but because it is the right thing to do. These actions improve the community that Starbucks is a part of which increases the community awareness of the problem as well as Starbucks commitment to help solve the problem.

When a store is opened in a new location the team of professionals that comes with the new stores also looks for opportunities that the store can undertake to decrease the environmental impact that the new stores create. Even something as a simple recycling program for the stores accumulation of plastic, coffee grounds or paper; or a more ambitious plan such as using renewable sources of energy to help power the store can decrease the environmental impact of that store. As more effort is spent on decreasing the environmental impact each store that has the ability to recycle or use alternative energy sources can be used as a template for additional stores. Taken as a whole these stores decrease the impact that Starbucks locations have on the global environmental problem.

Starbucks has developed plans to increase the ability of the stores to expand and become an increased presence in the global community. The company has been smart in their efforts to increase their presence by tailoring how the company expands into new geographic areas by the requirements presented by that new community. Starbucks has intended the company to maintain the small company appearance with the abilities and resources of a global company. This focus has increased the ability of Starbucks to make a positive difference in each of the communities that they are a part of as well as increase the size and financial strength of the company.

Bibliography

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STARBUCKS CORPORATION. (2005) Starbucks Recaps 2002-2004 Successes and Reiterates Fiscal 2005 Targets.

CONSERVATON INTERNATIONAL. Agriculture & Fisheries Starbucks Coffee Company.

KEMBELL, B. K., M., PERRY, S., OLSEN, L. (2002) Catching the Starbucks Fever. Missouri State University.

ROSEBERRY, W. (1996) Yuppie Coffees and the Reimagination of Class in the United States. American Anthropologist, 198, 762-775.

THOMPSON, A., STRICKLAND, A.J., GAMBLE, J. (2005) Driving for Global Dominance. 23-38.

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