CASE STUDY: STARBUCKS COFFEE COMPANY
Category : Starbucks Case Studies
Report on Starbucks
Overview of the Organization
Starbucks Coffee Company was founded in 1971, opening its first location in Seattle’s Pike Place Market. It was named after the first mate in ’s Moby Dick, is the world’s leading retailer, roaster and brand of specialty coffee with coffeehouses in North America, Europe, Middle East, Latin America and the Pacific Rim. Worldwide, approximately 35 million customers visit a Starbucks coffeehouse each week.
Starbucks is all about purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment – primarily through its company-operated retail stores. In addition to sales through their company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Furthermore, Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The Company’s objective is to establish Starbucks as the most recognized and respected brand in the world.
In realizing and achieving this goal, the Company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.
Starbucks used the design of a matrix configuration by combining divisional and functional structures. However, according to Starbucks Investor Relations, , Starbucks does not have a formal organizational chart that is send externally (as cited in ). In the case of Starbucks, the matrix structure is not employed for the entire organization.
Starbucks customers are people of diverse ethnic, income and age groups with varying tastes and interests. Starbucks embraces this diversity and strive to provide excellent customer service to those served by offering products that are relevant to customer base and their varying interests and tastes, including some products which may appeal to young people.
Starbucks is marketing on the youth and long been supporting community activities and events important to customers. Generally, the Company’s marketing, advertising, and event sponsorship are not directed at children or the youth.
The following are the new reviewed policies in realizing the company’s consistency with their marketing principles.
· Campaign and Sensitivity Review: Starbucks marketing materials and promotional campaigns undergo a formal “sensitivity review” process prior to its approval and distribution. This process involves a panel of Starbucks employees from key parts of the organization – such as Customer Relations, Public Affairs, Corporate Social Responsibility, Diversity, Internal Communications, and Legal – who will review marketing elements and provide input verbally and in writing. The purpose of this panel is to identify in advance and avoid distributing marketing materials that could be inadvertently appealing to youth, racially offensive, widely contentious or culturally insensitive. If consistent feedback is provided from members of the panel about a potential issue, the Marketing team adjusts the materials or campaigns to alleviate the issue.
· Media Buying: Starbucks has instructed its advertising agency to select media vehicles whose audience composition is closely aligned with Starbucks adult customer base when it comes to planning and executing marketing campaigns in which paid advertising media is used ().
Starbucks find diversity as a guiding principle that is integral to everything they do. The company has a concept of diversity as people are all the ways different but are the same. This concept includes human differences with regard to race, ethnicity, gender, culture, and physical ability.
Just as critical to the company’s success as a global company is the idea of inclusion, defined as a combination of differences and similarities in the pursuit of new ideas and individual relationships made everyday.
Starbucks creates a place for customers to feel welcome, providing equal opportunities and benefits to every one of their employees and working with minority or women owned businesses.
While Starbucks offers coffee to the world and is globally connected, the company strives to meet and respect the interests of local communities. The partnership with Magic Johnson’s Urban Coffee Opportunities helps introduce Starbucks to ethnically diverse communities throughout the country, providing even more places for people to connect.
Market Environment (Last Five Years)
· The Company signed memorandum of understanding with Fairtrade Labeling Organizations International (FLO) enabling Starbucks to enter into licensing agreements with national Fair Trade organizations to sell Fair Trade Certified coffee in the countries where Starbucks does business.
· Published its first Corporate Social Responsibility Annual Report
· Signed licensing agreement with TransFair Canada to bring Fair Trade Certified coffee to more than 270 retail locations in Canada.
· Reinforced its dedication to coffee producing countries and the farmers who grow Starbucks coffee through an expanded line of Commitment to Origins coffees.
· Tazo and Mercy Corps established collaboration for Hope and Advancement in India (CHAI), a project to strengthen communities in the tea growing district of Darjeeling where Tazo purchases some of the finest teas available in the world.
· Starbucks Board of Directors authorized stock repurchase plan of up to 10 million shares.
· Established Seattle Coffee Trading Company (SCTC) in the Canton of Vaud, Lausanne, Switzerland.
· Starbucks Coffee International opened in Oman; Indonesia; Germany; Spain; Puerto Rico; Mexico; Greece and Southern China Macau and Shenzhen accounting to a total Starbucks location of 5, 886.
· Begun a three-year $225,000 commitment to America SCORES, a national non-profit, youth development organization that uses soccer and literacy to inspire teamwork among at-risk children in urban public schools.
· Starbucks Board of Directors authorized stock repurchase plan of up to 10 million shares.
· Starbucks Coffee International opened its 1,000th Asia Pacific store in Beijing, China.
· Opened new state-of-the-art roasting facilities in Carson Valley, Nevada and Amsterdam, The Netherlands.
- Starbucks Coffee International opened in Turkey, Chile, Peru, and Cyprus.
- Current location total = 7, 225
- Starbucks Coffee International opened in Paris.
· Joined the United Nations Global Compact, an international network of corporations, U.N. agencies, trade unions and non-governmental organizations that support a shared set of nine principles about the environment, labor and human rights.
· Expanded agreement with United Airlines to include cooperative marketing agreement.
· Signed licensing agreement to open Seattle’s Best Coffee cafes in more than 400 existing Borders Books & Music stores over the next several years in the continental U.S. and Alaska, and within new Borders stores as they open.
- Current location total = 8, 569
· Announced that the Board of Directors authorizes the repurchase of up to 5 million shares of the Company’s common stock.
· Starbucks Board of Directors approves a two-for-one stock split. This is the fifth two-for-one split of the Company’s common stock since its initial public offering in 1992.
· Purchased 10 million pounds of Fair Trade Certified coffee and became North America’s largest purchaser of Fair Trade Certified coffee.
· Starbucks Coffee International opened stores in Bahamas, Ireland, and Starbucks first Company-operated stores in Dalian in Northeast China.
- Starbucks location total = 10, 241
· Acquired full ownership of Coffee Partners Hawaii, the joint-venture company that operates Starbucks retail stores in Hawaii and Café del Caribe, the joint venture company that operates Starbucks retail stores in Puerto Rico.
- Current Starbucks location total = 10, 801 ().
Market Share and Profitability
As of 2006, Starbucks Corporation’s first fiscal quarter earnings rose up to 20 percent over last year, driven by strong holiday sales of eggnog lattes and other coffee drinks. The Company boosted its earnings targets for the year, saying it expects earnings to be 68 cents to 70 cents a share. That would be 5 cents more than previously forecasted.
Starbucks shares surged nearly 6 percent, or $1.82, in late-session trading, after falling 34 cents, or 1.1 percent, to close at $31.36 1st of February on NASDAQ Stock Market. The company, whose stock has traded between $22.29 and $32.46 over the past 52 weeks, released its latest earnings after the markets closed (cited in 2006).
For the 13 weeks ended January 1, Starbucks earned $174 million, or 22 cents per share, up from $145 million, or 17 cents per share, in the comparable period a year earlier. Revenue for the latest quarter increased 22 percent to $1.93 billion, up from $1.59 billion in the comparable period last year.
The consensus forecast of analysts surveyed by Thomson Financial was 20 cents per share on revenue of $1.93 billion. Sales at Starbucks’ growing number of international stores posted a slightly bigger increase than sales at stores in the U.S. Total international net revenues increased 25 percent to $314 million for the first fiscal quarter, compared to $251 million for the same period last year. In the United States, total net revenues rose 21 percent to $1.6 billion compared to $1.3 billion last year.
According to Chief Financial Officer , Starbucks sees enormous growth potential in China, where 50 new stores opened over the past year, bringing the country’s total to 221. Casey said he expects China could one day have several thousand stores. , Starbucks’ president and chief executive, said the company also has high hopes for Brazil, Russia, and India, three countries where it doesn’t yet have any stores (cited in 2006). Stores opened in at least a year also raised its earnings adding to the above-stated increase.
At about 560 new stores were opened in the latest quarter, bringing the number of its stores to 10, 801 in 37 countries. Starbucks expects to open approximately 1,800 new stores globally over the next year, about 1, 300 of them in the United States and 500 internationally. According to Starbucks Chairman Howard Schultz in his conference with financial analysts that the company has never been more enthused or confident about the way in which it have been received and the ongoing profitability of the international business (cited in 2006).
Starbucks is not threatened with its competitors like the McDonald’s Corporation which has been focusing more on premium roast coffee, and the Incorporated, a Canadian coffee chain that’s planning a bigger presence in the United States.
Starbucks was called “a great global brand” by , an analyst with New York-based Victory NewBridge Capital Management and added that the company appears to be expanding at a prudent pace, especially overseas.