Mission, Strategy, and Ethics Mission, Strategy, and Ethics at Starbucksat Starbucks

Presenters:

McKeon, Mulzoff, Parisi, Singh

January 17, 2007

History

Chief Executive Officers

Mission Statement

Starbucks Guiding Principles

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.

Corporate Social Responsibility Report (CSR)

Recognized as one of “Ten Most Admired Companies in America” - FORTUNE: 2003 – 2006

One of “100 Best Corporate Citizens” - Business Ethics Magazine

One of “The 100 Best Companies to Work For”“Most Admired Company” in the Food Service Category - Fortune 2001 – 2005Ranked Sixth on the US Environmental Protection Agency’s Green Power Partnership list of “Top 25 Green Power Partners” for its significant purchase of Green PowerStarbucks is recognized in Diversity Inc.’s “Top 50 For Diversity” and “Top 10 Companies for Latinos”Starbucks is recognized as “Model Company for Sustainable Economic” by the Luoho Government in Shenzhen, China

Starbucks Awards

Coffee and Farmer Equity Practices (C.A.F.E.)

Fair Trade Coffee (F.T.C.)

Supplier Code of Conduct

Supplier Diversity Program

Business Practices Around The Globe

Starbucks developed practices with suppliers Ensures farmers produce quality bean and protect environment Assists in farmer economic development Deliver quality bean in line with Starbucks standards

C.A.F.E

Fair Trade Certification similar to C.A.F.EStarbucks purchased 11.5 million pounds Work with Global Exchange to promote

Fair Trade Coffee

Starbucks Supplier Code of Conduct

Ensure supply chain transparencySupport sound procurement decisions

through supplier screening and development

Focus on supplier performance improvement in alignment with Starbucks values

Certified by an independent third party to be at least 51% owned and operated by women, minorities, or individuals who are socially or economically disadvantaged.

* Received Regional Company of the Year award from National Minority Business Council

Supplier Diversity

Global Exchange, Oxfam and the Organic Consumers Association Purchase MORE Fair Trade Coffee Discontinue purchase of genetically engineered dairy products More support of coffee farmers in economically depressed areas

Oxfam's, Starbucks and Ethiopia more government support versus less legal complexity

“… involvement, it will be interesting to see how the battle develops. Starbucks has loyal customers who may well be prepared to hear its side of the story. Is it too much to hope that this battle might mark a turning-point in the war over corporate ethics, and that it will cease to be enough merely for a pressure group to throw mud at a company to make that mud stick? The Economist will drink a grande extra-wet triple-latte to that.”

The Economist Dec. 2005

…”Does Starbucks care? Ask any coffee farmer.”Starbucks Letter to the Editor: Seattle Post Intelligencer – Dec. 22, 2006

Dub Hay - Senior vice president, Coffee and Global Procurement

Percolating Issues of the Day

Build relationships with local communities

Assist in educational programs

Assist in the needs of our society

Monitor our Impact

Community Well-Being

Earvin “Magic” Johnson’s Development Corp.

The Starbucks Foundation

Make Your Mark Fund

Community – Word Projects

Save The Children

CA.R.E.

U.N. Global Compact

“Starbucks Cup Runneth Over”

Keeping It Green

“The Sky’s the Limit”

A Cup’s Story or “A Tale of the Cup”

The CUP Program

Daily Grind

Care for partners well-being

Encourage our partners involvement

Business Code Of Conduct

Foster diversity and inclusion

We The People or “He Said, She Said”

Starbucks versus Unionization

Employee Lawsuits

“Cluster-Bombing”

A Tale Of Two Cups

Noble

Engaging our communities

Taking care of our partners

Profitable

Small coffee shop owner lawsuits

NLRB ruling, Employee lawsuits

Partnership Begins

Partners with Host Marriott Licensing Agreement Attracted customers from all over the world. Turned out to be successful in the long run

Training Increased staffing Management support

Partnership Becomes Part of Starbucks

Seattle’s Redhook Ale Brewery Double Black Stout Products focused on adult customers

Dreyer’s Grand Ice Cream Java Chip, Biscotti Bliss, Vanilla Mocha Chip….and

many more product names. Had the best distribution system in selling

ice cream Enhanced the brand equity of Starbucks

Partnership In The Air

Horizon Airlines First airline to recognize the added value that great

coffee gives to its passengers. Easy to serve on short flights throughout Seattle

United Airlines Risky partnership Came up with a way to handle quality control on planes

with varying equipments

Partnership Expands

PepsiCo (North American Coffee Partnership) Had the best distribution system of beverages among

competitors Created new beverage lines (ready-to-drink cold coffee)

Frappuccinos, Double Shot

Ethos Water Partners with PepsiCo to distribute its bottled water

Kraft Food Manages all Starbucks whole beans and ground coffee

products.

Something Still Missing…. ?

There was still something lacking: Acquires Hear Music Channel (1999) Partners with T-Mobile Partners with Hewlett Packard Partners with XM Satellite Radio

“This service is a natural extension of the Starbuckscoffeehouse experience, which has always been aboutmaking connections with the people and information thatare important to us over a cup of coffee”

- Howard Schultz

Its Never Going to End…..

Other Strategic Partnerships Nordstrom Stores Sheraton and Westin Hotels Hyatt Hotels Barnes & Noble Bookstore Chapter’s Inc Bookstore Albertson’s U.S Office Products College Campuses

Partnership Success

Starts with a One-Year AgreementProfitPerformanceTraining

Successful?

Deal ExtendsDeal

Extends

Unsuccessful?

Deal Expires

Reason for Partnerships Enhances the brand equity and burnishes their image Introduces new customers to the Starbucks experience Strategic Partners

Understands value of Starbucks Has brand name recognitions and a good reputation in its

field. Promises to protect Starbucks brand and quality of coffee

“If we weren’t so obsessed with control, our business would be a a lot easier. But the coffee wouldn’t be as good.”

-Howard Schultz

BUSSINESS STRATEGY

Location, Location… Location Manhattan is the quintessential example of the Starbucks

location strategy Starbucks objective is to “establish themselves as the most

recognized and respected brand in the world” (SB annual report 2005)

Aggressive store tactics that are unconventional because they place one location in very close proximity to the next.– “We self-cannibalize at least a third of our stores every

day” (Schultz, Starbucks’ Growth Strategy, St. Pete Times online)

Starbucks embraces self-cannibalization as the fastest way to expand business

Idea began when they acquired a competitor in British Columbia

Zip Code 10019 Zip Code 10016

BUSINESS STRATEGY

BUSINESS STRATEGY

Method to the Madness

Close by locations keep the flow moving within the stores Most of business done at retail locations are before 10am,

they aim to serve your drink in under 3 minutes Long lines will have people leaving the store. Another

Starbucks close by will hedge them from going to a competitor

It was the popularity of their seasonal cold Frappuccion flavors in Summer 2006 that cost them to have weaker than expected sales

BUSINESS STRATEGY

Method to the Madness

Close by locations create a sense of Ubiquity Starbucks uses its storefronts as billboards and clusters

them close together building brand awareness and creating demand

Collaborating with their multitude of locations, the Starbucks licensed products in supermarkets, iTunes, restaurants etc., contribute to the sense of being ‘everywhere’

Their Ubiquity gives Starbucks the luxury of having small advertising budgets

BUSINESS STRATEGY

Method to the Madness Starbucks is predicting a 20-25% growth per year for the

next several years “The primary driver of the company’s revenue growth

continues to be the opening of new retail stores” (SB Annual Report 2005)

International growth is where there is a large opportunity for growth They are looking to expand the 3,500 locations in 37 countries to

15,000 outside the United States

BUSINESS STRATEGY

It’s a Small World After All37 Countries including….

BUSINESS STRATEGYWith 1.3Billion, Who Cares if They Drink Tea

China expects to be Starbucks largest markets outside the United States

Starbucks has been in China since 1999. Currently they have approximately 400 locations including Beijing and The Forbidden City

China poses Starbucks biggest challenge yet the greatest financial potential Local officials considered revoking Starbucks one-year business

license after two months

BUSINESS STRATEGY

One World Under Starbucks

Starbucks is counting on the youth “a new generation of Chinese with growing spending

power and an appetite for high-status brands” (Starbucks conquers tea-drinking China, CBS news online)

Bought out a local competitor “Starbucks is homogenizing the world, you’re taking

culture out of places like China and Japan and Americanizing them” (Howard Schultz: The Star of Starbucks, CBS News Online)

BUSINESS STRATEGY

Where Everyone Knows Your Name

With all these big growth plans and ideas of entering new markets, Starbucks still strives to be the coffee shop where everyone knows your name “The battle within the company is making sure growth

doesn’t dilute our cultures. Starbucks executives tenaciously hold on to the idea that every store is like an independent coffee house” (Howard Schultz, The Big Gulp,

Time Magazine)

Still room for growth

BUSINESS STRATEGY

Starbucks Lingo

One of Starbucks critical success factors is their lingo

Initially intimidating, yet creates a sense of belonging that intrigues customers and creates community

“Part of the richness of the personalized Starbucks experience…producing the emotional bond that loyal Starbucks customers feel” – author, Joseph Michelli

BUSINESS STRATEGY

Liquid Dessert

Frappuccino is Starbucks signature beverage Created in 1995 Variety of different Frappuccino Explosive popularity might have been reason for

weak sales in Summer 2006

BUSINESS STRATEGY

More than 18 times per month To increase revenues Starbucks is seeking to

attract new customers and increase the frequency of visit of their current customers

New Product innovation & Popularity of core products 87,000 possible drink combinations, 22 new beverages in 2 years

Offering more than just coffee

BUSINESS STRATEGY

Would You Like Egg With That?

60% of business happens before 10amBreakfast restaurants are stepping up their

coffeeBreakfast sandwiches were big step for

Starbucks; combating fast-food image Rolled out in test cities in Fall 2006 Adding 600 more drive through

BUSINESS STRATEGY

The ‘Third’ Place

Starbucks positions their cafes to be the ‘third place’ impression to their customers They have created a place other than work or home where

people will feel comfortable spending time alone or with friends

“We’re in the business of human connection and humanity, creating communities in a third place between work and home” (Howard Schultz, Star of Starbucks)

The delivery people as well as the CFO’s of the world are both enjoying the same rituals, the same coffees, the same experience. They have made coffee connoisseurs out of everyday people.

BUSINESS STRATEGY

“Starbucks unique culture, the intimacy of its brand, and the uniqueness of the customer experience will keep people

coming back. The company went to great lengths to make sure the store fixtures, the merchandise displays, the colors,

the artwork, the banners the music and the aromas all blended to create a consistent, inviting, stimulating

environment that evoke the romance of coffee that signaled the company’s passion for coffee, and that rewarded

customers with ceremony, stories and surprise.”

Quality of the Starbucks Brand

BUSINESS STRATEGY

Critical to Starbucks Success

Hire and train employees that act more as a partner to the customer than a cashier

Not employees, but partners Instill passion, respect and dignity that they can pass on to

the customers 82% job satisfaction rate (Hewitt Associates Starbucks Partner

View Survey) Partners ensure the consistency and inviting environment

that embodies the quality and secret to Starbucks success

BUSINESS STRATEGY

The value of the Starbucks strategy is that their products transcends class structure in our society

They differentiate from the competition because their luxury coffee is enjoyed by all types of people Same rituals Same coffees Same experience Same community

The luxury of “Fourbucks” and their high quality product keeps their customers returning 18 times per month

Money is No Object