Starbucks at a Glance

Starbucks started in 1971 at Seattle by Jerry Baldwine, Zev

Seigle and Gorden Bawker .
Basicaly a retail chain of coffee, tea and spices.
four stores in Seattle and profitable since its opening
Zev Seigle left the company in 1980 to pursue other
interests.
Mainly USP was the quality of Coffee offered to the
customers.
Howard Schultz, vice president and general manager of U.S
operations for a swedish maker of Stylish chicken
equipment and coffeemakers met with the partners of
starbucks in 1981 and after understanding the company
wished to join starbucks.
 The Specialty Coffee Industry

- In 1994, Coffee was the second most traded commodity after

Oil

- There are two main categories of Coffee, Basic and Specialty

- In 1994, the Specialty Coffee Industry was growing at 15% p.a.

at the expense of the Basic Coffee Industry
Specialty Coffee Sales
as a Percentage of Total Coffee Sales

60

50

40
% of Sales
30

20

10

0
1983 1988 1993 1998
 Coffee Drinking Trends

The Conspicuous Consumption of Coffee:

- In 1996, per capita consumption of coffee was only about 1.7
cups per day per person

- Consumption of specialty coffee had gone up during

the same period, because of the following reasons

-- Americans substituted specialty coffee for alcohol

-- Coffee bars became a great place to meet people

-- Coffee was an affordable luxury people liked to spend

on

-- Consumers were becoming more knowledgeable

about coffee
 Starbucks Business

Starbucks has a very aggressive growth strategy,

and has expanded its operations as follows:

- Retail Stores

- Specialty Sales

UAL PriceCostco
Nordstrom Red Hook Breweries
Barnes & Nobles Dreyers Ice Cream
Pepsi Co. (Frappuccino, ARAMARK
etc.)

- Merchandising

- Mail Order
 Schultz and Starbucks
Schultz mainly focused on the expantion of starbucks
outside seattle.
He joined strbucks in the four stores in seattle working
behind the counters , tasting different kinds of coffees,
talking with the customers , getting to store personel,
and learning the retail aspects of the coffee business.
Become CEO of the company and turn around the
entire scenario of doing business of starbucks.
Mainly focused in expansion plans and employee
managament.
 Current Locations
Licensed stores:
S tore s ope n a s of Oct. 3, 2 004
Asi a Pa ci fi c Euro pe / Am eri ca s Company-operated stores:
Mi ddle Ea st/Afri ca
Ne t store s Store s ope n
Ja pa n 534 Ge rm a n y 35 Un i te d S ta te s 1839
o pe ne d a s of Oct. 3 ,
C h in a 152 S a udi Ara bi a 32 Ca na da 66 duri ng fi sca l 2004
T ai wa n 136 UA E 31 Ha wa i i 45 ye a r 2004
S outh 102 S pa i n 27 Me xi co 32 Uni te d Sta te s 514 4 293
Kore a
Ph i li ppi ne s 70 Kuwa i t 27 Ch i le 9 I nte rna ti ona l:
Ma la ysi a 52 Gree ce 25 Pue rto Ri co 6
Ne w 36 S wi tzerla n d 18 Pe ru 3 Uni te d Ki ng dom 49 422
Ze a la n d Ca nada 56 372
I n done si a 24 T urke y 15 T hai land 11 49
Le ba non 10 A u s tr a l i a 4 44
A u s tr i a 8 Si nga pore - 35
Qa ta r 6 T ota l 120 922
Ba hra i n 5 I nte rna ti ona l
Fra n ce 4 T ota l Com pa ny- 634 5 215
Om a n 3 o pe rate d
Cyprus 2
T ota l 1 106 248 2000

- More than 2400 stores in 33 countries outside the US

- More than 1500 stores in 31 markets outside North America
Que-1 what are the key elements of starbucks strategy
as of 2004? Does the company have a clear strategic
intense according to chapter 2.
Key elements.
Expansion plans to open 1300 new outlets worldwide .
To achieve comparable sales growth of 3 to 7%.
Revenue expected to grow by 20% annually.
Net earning by 20-25 % annually.
 Strategic questions been considered
What could starbucks do to make its store more rewarded
welcomed and surprised customers.
What new products and new experiences could starbucks
provide that would uniquely belong to be aasociated with SB?
How to reach those customers who dont drink coffee.
What are the new strategic paths should starbuck persue to
achieve its objectives of becming the most recognized brand
in the world.
 Yes the company has a clearly defined strategy
according to chapter 2. the justifications can as under
As per the vision statement of starbucks company is
going to open 1300 new outlets worldwide
To make the starbuck one of the leading worlds
preeminent global brands and to sustain economic
growth the company have to be innovatiove and
compititive and take risk.
Que-2 what grade would you give howard schultz for the job he has done as
CEO of starbucks? Be prepared to support your answer based on how well he
has performed the five tasks of strategic mgt.( discussed in chap.2)

I WILL GIVE ( B+)

GRADE TO HOWARD SCHULTZ FOR THE JOB
HE HAS DONE AS CEO OF STAR BUCK .
WHAT IS STRATEGY ?
MANAGEMENTS GAME PLAN FOR GROWING THE
BUSINESS STAKING OUT A MARKET POSITION ,
ATTRACTING & PLEASING CUSTOMERS .

IT IS A PLAN OF ACTION .
STRATEGY MAKING &
STRATEGY EXECUTING PROCESS

1. DEVELOPING A STRATGIC VISION &

MISSION STATEMENTS .
2. SETTING FINANCIAL & STRATEGIC
OBJECTIVES .
3. CRAFTING STRATEGY FROM MISSION ,
VISION & OBJECTIVES .
4. IMPLEMENTING & EXECUTING STRATEGY .
5. MONITORING DEVELOPMENTS &
EVALUTING PERFORMANCES .
 STEP - 1

DEVELOPING A STRATGIC VISION &

MISSION STATEMENTS
VISION STATMENT

TO BECOME NATIONAL COMPANY WITH

VALUES & GUIDING PRINCIPLES
THAT EMPLOYEES COULD PROUD OFF .
MISSION STATMENT
ESTABLISH STARBUCKS AS THE PREMIER PURVEYOR OF THE
FINEST COFFEE IN THE WORLD WHILE MAINTAINING OUR
UNCOMPROMISING PRINCIPLES WHILE WE GROW .

GUIDING PRINCIPLES TO COMPLETE THE MISSION & VISION

1. GREAT WORK ENVIORNMENT

2. HIGHEST STANDARD TO EXCELLANCE
3. CONTRIBUTE POSITIVELY TO COMMUNITIES & ENVIORNMENT .
4. RECOGNISE PROFITABLITY.
5. DEVELOP ENTHUSIASTICALLY SATISFIED CUSTOMER.
6. EMBRACE DIVERSITY AS AN ESSENTIAL COMPONENT IN THE
WAY WE DO BUSINESS .
 STEP - 2

SETTING FINANCIAL & STRATEGIC

OBJECTIVES
STRATEGIC OBJECTIVES
TO BUILD A COMPANY THAT VALUED AND RESPECTED ITS
PEOPLE , THAT INSPIED THEM , AND THAT SHARED THE FRUITS
OF SUCCESS WITH THOSE WHO COTRIBUTED TO THE
COMPANYS LONG TERM VALUE .

MANAGEMENT EXPECTED TO HAVE 15000 STARBUCKS STORES BY

YEAR ENDED 2005 & 25000 LOCATIONS BY 2013 .

SCGULTZ DECIDED TO MAKE BUILDING A NEW RELATIONSHIP

OF MUTUAL RESPECT BETWEEN EMPLOYEES & MANAGEMENT A
PRIORITY .
FINANCIAL OBJECTIVES

THERE IS NO NEED TO SEE FINANCIAL

OBJECTIVES AS STRATEGIC OBJECTIVES CLEARLY
DEFINES THE FINANCIAL OBJECTS WHICH ARE
DIRCTLY OR INDIRECTLY BEHIND THE STRATEGIC
OBJECTIVES .
 STEP - 3

CRAFTING STRATEGY FROM MISSION , VISION & OBJECTIVES

CRAFTING A STRATEGY
THERE WAS A LACK OF MANAGEMENT STAFF SO

APPOINT MR. DAVE OLSEN A SETTLE COFFEE BAR OWNER

APPOINT MR. LAWRENCE MALTZ , WHO HAD 20 YEARS EXPERIENCE
WILL TAKE CARE OF FINANCE ,HUMAN RESOURCE AND ALSO A
VICE PRESIDENT

NEW LOGO FOR THE NEW COMPANY.

STOCK OPTION PLAN FOR THE EMPLOYEES .

TAKE CARE OF PART TIME EMPLOYEES ALSO .

MADE STAR BUCK A GREAT PLACE TO WORK .

CUSTOMERS SHOULD HAVE POSITIVE EXPERIENCE .

 STEP - 4

IMPLEMENTING & EXECUTING STRATEGY .

IMPLEMENTING & EXECUTING
STRATEGY
NEW STORES
OPEN FIRST STORE IN CHICAGO -1987.
IN NEXT SIX MONTHS
THREE MORE STORES
CARLIFORNIA (L.A ) TO HIGH QUALITY &
INNOVATIVE FOOD
(L.A ) CONSUMERS EMBRACED STARBUCK
QUICKLY .
SAN FRANCISCO
OPEN MORE & MORE STORES
1988 20
1989 30
1990 32
1991 53
 in winter season less people visit the place.
MADE QUALITY ASSURANCE BY FRESHLY ROASTED BENAS IN
SPECIAL FLAVOURLOCK BAGS THAT USED VACUUM PACKAGING
TECHNIQUES .
NO FRANCHISEE
TO KEEP THE COMPANY FULL CONTROL OF ITS PRODUCT .
 THEY TOOK MONEY FROM
VENTURE CAPTIALISTS

1988 3.9$ MILLION

1989 13.5$ MILLION
1990 15 $ MILLION
THEY WERE COMMITING LOSSES .

1987 3,30,000$
1988 7,64,000$
1989 1.2$ BILLION
1990 ONWARD THEY BECOME PROFITABLE
VALID REASONS BEHIND LOSSES
GIVEN BY HOWARD
WE HAVE TO ATTRACT A MANAGEMENT
TEAM WELL BEYOND OUR EXPANSION
NEEDS .
WE HAVE TO BUILD WORLD CLASS
ROASTING FACILITY .
WE NEED COMPUTER INFORMATION
SYSTEM SOPHISTICATED ENOUGH TO KEEP
TRACK OF SALES IN HUNDREDS AND
HUNDREDS OF STORES .
 STEP - 5

MONITORING DEVELOPMENTS & EVALUTING PERFORMANCES .

SUCCESS OF STARBUCK
YEAR STORE
1987 17
1993 272
1996 1015
1999 2135
2002 5886
2003 7225
GROWTH OF STORES
8000
7000
6000
5000
4000
3000
2000
1000
0
1987 1993 1996 1999 2002 2003
 OPERATING INCOME
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1998 1999 2000 2001 2002 2003

YEAR
DUE TO ALL THIS SKILLS AND IDEAS THE WAY IN WHICH HE HAD
EXECUTED THE STRATEGY AND MADE STARBUCK PROFITABLE

AS PER MY BEST KNOWLEDGE

HE DESERVE (A- ) GRADE .

Que -3 what was howard Schultz's original strategic vision for starbucks? Is his
present strategic vision different from the one he had in the 1980s? How many
times has his strategic vision changed? Is his present strategic vision likely to
undergo further evolution?
Past Strategy
To provide best service to the customers with varieties of coffee.
Innovative products and services
Mainly focused on workforce management.
Just focused on the local market in seattle.

Present Stately
Que-4 has starbucks strategy evolved as the strategic
vision has evolved?
Que-5 what are the key policies practices and procedures that
underline how howard schultz and strategic mgt have
implemented and executed the chosen strategy?
On becoming the CEO of the company the vision of the starbucks was to make it a
national company with guiding principles that employees could be proud of .
Schultz restored the old and honest employees of starbucks to give the best service
to the customers.
Dave Lawrence was hired as a executive vice presented and charged with leading
operation, finance and human resources.
New logo was invented to match the culture of the starbucks and Giornale.
New espresso machines were equipped and look more Italian than old world
nautical
Chicago store opened in October 1987 as per expansion strategy
Identifying inability of the customers for having a cup of coffee in the winter season
in Chicago, schultz solved the problem of freshness and quality assurance by
putting freshly roasted beans in special flavor lock bags that used vacuum
packaging technique.
Portland, oregon was the next market the cmpany entred.
 Entered in L.A in late 1991.
Opened 15 new stores in 1988, 20 in 1989, 30 in 1990, and 53 in 1992, producing a
total of 161 stores in US.
Also went for franchising concept to retrieve the cost for new store expansion.
In order to make starbucks a great place to work schultz accepted to expand
healthcare coverage to include part-time workers.
To oversee the expansion process starbucks created zone wise vice presidents to
direct the development of each region and to implant the starbucks culture in the
newly opened stores.
Starbucks had created a new subsidiary, starbucks coffee international, to
orchestrate overseas expansion and build the starbucks brand name globally via
license.
To accommodate its strategy of rapid store expansion, starbucks put in systems to
recruit, hire and train baristas and store managers.
In august 2002 starbucks teamed up with T-mobile USA, the largest carrier-owned
Wi-Fi services, to experiment with providing internet access and enhanced digital
entertainment to patrons at over 1200 starbucks locations.
Que-6 what is your assessment of starbucks financial performance
during fiscal years 1998-03. Does the companys performance
indicate that starbucks strategy is working well?
SOME FINDINGS & SUGGESTIONS
GROWTH IN TOTAL NET REVENVUE
SHOWS GROWTH OF 25.51% EVERY
YEAR.
 TOTAL NET REVENUE

4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
1998 1999 2000 2001 2002 2003
YEARS
GROWTH IN OPERATING INCOME
SHOWS GROWTH OF 31.21%
 OPERATING INCOME
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1998 1999 2000 2001 2002 2003

YEAR
CURRENT RATIOS FOR THE YEAR 1998 -2003

YEAR RATIO

1998 1.52 :1

1999 1.67 :1

2000 1.33 :1

2001 1.47 :1

2002 1.54 :1

2003 1.90 :1
CURRENT RATIOS
1. THE CURRENT RATIOS SHOWS THE COMPANYS ABILITY
TO PAY DEBT IN SHORT TERM & IS GOING TO BE IDLE
ONE WHICH IS 2:1 .
2. THE CURRENT RATIO SUGGESTS THAT THE COMPANY IS
FINANCIALLY VERY SOUND AS THE ASSET RATIO IS
FAVOURABLE FOR THE COMPANY .
3. THE COMPANY IS UTILIZING THE CURRENT ASSET
PROPERLY .
FIX ASSETS
AS FAR AS TOTAL ASSETS ARE CONCERN COMPANYS FIXED
ASSETS ARE ALSO INCREASED AS THERE IS INCREASED IN
STAR BUCK OUTLETS .

THE GROTH RATE IN FIX ASSETS IS ABOUT 42.76 % WHICH

IS SEEING THE EXCELLENT DEMAND OF THE PRODUCT IN
COMING FUTURE
 Starbuck had an agreement with Marriott Host International
that allowed Host to operate Star Buck Retail stores in Airport
location.
And with Aramark Food And Serving for the Star stores on
university Campuses.
Starbuck received the license fee and royalty.
with this strategy licensed and Franchised stores starbuck has
opened 1422 Stores in US and 1257 stores internationally in 2003.
Revenue is $150 mil from US and $250 mil from international.
What issues confront the company as of
2004?
What should companys management
worried about?
 Issue of health care benefit to the part time workers.
Uneasiness among the customers due to arrogant
behavior of the employees as well as lack of knowledge
about the fine coffee.
Due to acquisition of peet enterprise starbuck
employees began to feel neglected and they didnt
receive a bonus due to tight financial conditions.
The first joint venture of the starbuck went into
failure.
Management's worried

In 2003 there were 14000 specialty outlet of specialty coffee

drinks against starbuck by 2015
No. of rival scale-up their expansion plan and local and regional
player would merge in a better position themselves as alternative
to star buck
Company had to do something for making its outlet more
elegant that welcomed reward , and please customer ( third
place)
To reach people ( geographical area) who are not coffee drinker
What recommendations would you make
Howard to sustain the companys growth and
support continued strong financial
performance in the year ahead?
 Starbuck should allocate more of its budget towards advertising
for building the brand along with direct marketing.
Starbuck should look for new product through innovation and
target new market segment that provide unique association
among them.
Star buck should target new market segment that provide
unique association among them.
The company should maintain the balance between the amount
of dividends to be paid and to be reinvested in the business.
Starbuck should buy back its outstanding share from market.
Star buck should used its d/e ratio in a proper manner
What is the Starbucks Experience?
Q:5

What are the key policy practices and procedures that

underlie? How Howard Schultz and Starbucks management
have implemented and executed the chosen strategy?
Howard strongly believes in..
Making
Starbucks A
Great Place To
Work
 HEALTHCARE BENEFIT TO PART TIME WORKERS

Cost of the benefit to company - $1500 per employee

Cost of Hiring & Training new employee - $3000 per employee
Part time employees who are working more that 20 hour per
week
75% of the premium by Starbucks
Extended Health coverage - Preventive care, Crisis counseling,
Dental care, Eye care, Mental health
 EMPLOYEE STOCK OPTION PLAN

Give employee a chance to share in the success of

the company
Bean Stock plan
Stock options worth 14% of the base pay
Employees now Became Partners
Starbuck Became public company in 1992
One of the most successful IPO in the year
 STOCK PURCHASE PLAN

Eligible employee can contribute up to 10% of their base

earnings to quarterly purchase of the companys
common stock @ 85% of going stock price.
5.7 million shares has been issued as of fiscal year 2003.
11,184 out of 35,000 eligible employees had participated
 WORK PLACE ENVIRONMENT

Employees are paid $9 - $12 which is higher than

minimum hourly wages
Turnover rate is 65% against 150 to 400% of other
national retailers and fast food chains
Turnover of store managers was just 25% against 50% of
other chain retailers
79% employees favorable environment
72% employees- satisfied with their job
One of the 100 best company to work Fortune
Magazine
Other Fringe Benefits..
Medical insurance
Dental and vision care
Life insurance
Sick time
Paid vacations
Free pound of coffee each week
30% product discount
WHAT IS STARBUCKS STRATEGY
For Howard Schultz

For Management and Employees

For Shareholders

For Customers

For Suppliers and Partners

What are the key elements of star buck's
strategy as of 2004?
Does the company have the clear strategic
intent?
Key elements of star buck's strategy :
To expand its business internationally.
To recruit the people who are passionate about coffee
and provide them a skilful training which familiarize
them with companys value principle and culture.
To experience the people with a unique store
ambience.
To provide wider product line by offering vast range
of coffee beverages.
To open up franchise along with starbucks own store
in various countries.
Companys strategic intent :
To establish starbuck as a most recognised and
respected brand in the world.
To open the new stores worldwide in order to
increase the revenue and market share.
What grade would you give Howard Schultz
for the job he has done as CEO of star bucks?
Be prepared to support your answer based
on how well (or not so well) he has
performed the five tasks of strategic
management discussed in chapter-2.
Strategic vision
To establish starbuck as a most recognised and
respected brand in the world.
Setting objectives
To open 1300 stores worldwide.
To achieve sales growth of 3% to 7% that could grow
revenues by 20% per annum and net earning by 20-
25% annually for next 3 to 5 years.
To recognise that profitability is essential to future
success.
Crafting strategy
To expand its business internationally.
To develop a customer satisfaction by building the
brand loyalty through persuading starbucks exacting
standards of quality and flavour.
To source greater range of coffee varieties to customers
from multiple geographic areas which reduces the risk
of weather, price and changing economic conditions.
Implementing and executing the
strategy
Entered into franchise and licensing agreements to enter into
global market.
Employed the persons who were knowledgeable about the
products, who eagerly communicated the companys passion for
the coffee and who possessed the skills and personality to
deliver customer services.
Company gave the employees their chance to share in the
success of the company in order to make harmonize relationship
between the management and its employees
Monitoring the strategy
The company should evaluate their performance
quarterly basis and if any deviations found then it
should try to revise it.
What issues confront the company as of
2004?
What should companys management
worried about?
 Issue of health care benefit to the part time workers.
Uneasiness among the customers due to arrogant
behavior of the employees as well as lack of knowledge
about the fine coffee.
Due to acquisition of peet enterprise starbuck
employees began to feel neglected and they didnt
receive a bonus due to tight financial conditions.
The first joint venture of the starbuck went into
failure.
Management's worried

In 2003 there were 14000 specialty outlet of specialty coffee

drinks against starbuck by 2015
No. of rival scale-up their expansion plan and local and regional
player would merge in a better position themselves as alternative
to star buck
Company had to do something for making its outlet more
elegant that welcomed reward , and please customer ( third
place)
To reach people ( geographical area) who are not coffee drinker
What recommendations would you make
Howard to sustain the companys growth and
support continued strong financial
performance in the year ahead?
 Starbuck should allocate more of its budget towards advertising
for building the brand along with direct marketing.
Starbuck should look for new product through innovation and
target new market segment that provide unique association
among them.
Star buck should target new market segment that provide
unique association among them.
The company should maintain the balance between the amount
of dividends to be paid and to be reinvested in the business.
Starbuck should buy back its outstanding share from market.
Star buck should used its d/e ratio in a proper manner