prepared and presented by: wassem amin, darren applegate, tim kelly, barbara kershner, erald sino,...
TRANSCRIPT
PREPARED AND PRESENTED BY: WASSEM AMIN, DARREN APPLEGATE, TIM KELLY, BARBARA KERSHNER, ERALD SINO, EWA SITARSKI, KLITON XHEMALI
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STARBUCKSA Case Analysis
GR 732 Marketing Management 2007
Case Analysis Outline 2
I. Executive Summary ~ T. Kelly
II. Situation Analysis ~ W. Amin / E. Sino / K. Xhemali Environment Industry Organization Marketing Strategy
Problems Found in Situation Analysis ~ D. Applegate / B. Kershner Statement of Primary Problems Statement of Secondary Problems
Strategic Alternatives for Solving Problems ~ D. Applegate / B. Kershner
Selection of Strategic Alternative and Implementation ~ D. Applegate / B. Kershner Statement of Selected Strategy Justification for Selected Strategy Description of Implementation of Strategy
VI. Summary ~ T. Kelley
VII. Appendices ~ E. Sitaskri Financial Analysis Technical Analysis
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Vision4
• Be known as one of the world’s great companies
• Create one of the world’s greatest brands
• Maintain an uncompromising commitment to coffee quality
• Create a great work environment and believe in the power or our people
• Lead with integrity, courage and passion
• Maintain our commitment to our communities and the environment
WORLDS LARGEST COFFEEHOUSESells drip brewed coffee, espresso-based hot drinks, other hot and
cold drinks, snacks, ice cream, and items such as mugs, coffee beans, and music.
OVER 13000 STORES IN OVER 40 COUNTRIESRetail brick and mortar locations as well as licensed outlets,
grocery stores, and the internet. ANNUAL REVENUES IN EXCESS OF $7 BILLION OVER 140,000 EMPLOYEES FOUNDED IN 1971 IN SEATTLE, WASHINGTON STARBUCKS INCORPORATED IN 1987 (HOWARD SHULTZ) HAS AGGRESSIVE GROWTH PLANS:
40,000 retail stores worldwide
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EXECUTIVE SUMMARY
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Situational Analysis
Consumption Trends108 million consumers164 million per year54% of the population
Consumption Data9.7 lbs of coffee3.1 cups per day
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• Today’s Consumption Trends Coffee- Soft Drinks Younger Drinkers
Situational Analysis
Labor disputes 2004 Workers joined IWW 2005 Kent, Washington 2006 Reinstatement of 5 workers 2006 Pay increase in New Zealand
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SITUATIONAL ANALYSIS11
Coffee bean market
Although it has endured much criticism for its purported monopoly on the global coffee-bean market, Starbucks only accounts for roughly two percent of global coffee production.
According to Starbucks, they purchased 4.8 million pounds (2,180 t) of Certified Fair Trade coffee in fiscal year 2004 and 11.5 million pounds (5,220 t) in 2005. They have become the largest buyer of Certified Fair Trade coffee in North America (10% of the global market) and the only company licensed to sell Certified Fair Trade coffee in 23 countries.
Of the almost 300 million pounds of coffee Starbucks purchased in 2006, about 6 percent was certified as fair trade.
Starbucks ~ Organizational and Marketing
Strategy12
Industry Restaurants
Products Starbucks /Seattle’s Best Coffee•Frappuccino •Tazo Tea•Torrefazione Italia Coffee•Hear Music•Pasqua Coffee
Revenue $7.786 billion USD (2006)
Net income
Employees 147,436
Slogan
Website www.starbucks.com
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Industry Restaurants
Products •Coffee•Doughnuts•Timbits•Bagels•Muffins•Soups•Sandwiches•Iced Cappuccinio
Revenue $1.482 billion CAD (2006)
Net income $191.1 million CAD (2006)
Employees 70,000 (2005)
Slogan “Always Fresh at Tim Horton’s”
Website www.TimHortons.com
Tim Horton’s ~ Tim Horton’s ~ Organizational and Marketing StrategyOrganizational and Marketing Strategy
Dunkin Donuts ~ Dunkin Donuts ~ Organizational and Marketing StrategyOrganizational and Marketing Strategy
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Industry Restaurants
Products •Coffee•Doughnuts•Munkins•Bagels•Muffins•Breakfast Sandwiches•Iced Coffee
Revenue $4.7 billion USD (2006)
Net income $???????million CAD (2006)
Employees ???? (2005)
Slogan “America Runs on Dunkin”
Website www.DunkinDonuts.com
ORGANIZATION:
FINANCIAL CONDITION:15
SITUATIONAL ANALYSIS
Starbucks has continued to post net income and revenue since 2002
The company recorded revenues of $7787 million in the fiscal year of October 2006, an increase of 22.3% over 2005.
Starbucks Corporation generates revenues through three business divisions: US (79.3& of total), international (16.7%), and consumer products group (3.9%).
Its very strong financial position allows it to expand aggressively domestically Internationally.
ORGANIZATION:MANAGEMENT PHILOSOPHY AND ORGANIZATIONAL CULTURE
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SITUATIONAL ANALYSIS
Top Management believes in Day-to-Day involvement in the activities of the Corporation: Hands On approach.
Employees enjoy unsurpassed benefits in the industry. Schultz strongly believes that Employee satisfaction is directly related to customer satisfaction.
“Partners are at the heart of the Starbucks Experience. One of the reasons Starbucks has been so successful is because of the human connection customers and partners share every day in our stores around the world. We remain steadfastly committed to creating a great work environment, and to offering health benefits for eligible full- and part-time partners despite The significant rise in health care costs. In turn we are gratified to see partners provide a great experience for our customers.”
Organizational Culture (contd)17
However, although the company has a better pay scale than its competitors, individual employee productivity has remained relatively lower.
Starbucks’ revenue per employee was $53,408 in 2006 as compared to an industry average of $93,330 per employee.
Additionally, Starbucks' net profit per employee is $3,870, as compared to an industry average of $8,299 per employee.
Attributed to higher cost of training per employee.
Marketing Strategy:Analysis of Sales, Profit, and Market Share
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The companies purchases and sells high quality coffees, along with whole coffee beans, espresso beverages, a variety of food items such as sandwiches and baked goods, coffee related equipments and accessories, a line of premium teas, and a record label which features prominent artists and a satellite radio channel.
Three operating segments: US, International, and Global Consumer Products Group (CPG).
At the end of fiscal year 2006, Starbucks had over 16,200 Corporate accounts.
The company recorded revenues of $7,787 million at the end fiscal 2006, which was an increase of 22.3% over 2005.
Analysis (Cont’d)
Revenue divided per division was US (79.3%), International (16.7%), and CPG (3.9%). In dollars and cents, each group posted $6,178.6 million, $1,302.9, and $305.5, respectively.
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SWOT Analysis20
Strengths Weaknesses
Widely recognized and strong brand image
Strong Financial Performance
Economies of Scale, large operations
Narrow product mix
Low Employee Productivity
Opportunities Threats
New Markets
Increasingly growing specialty coffee market
Intense competition
Volatile coffee and dairy prices
SWOT Analysis
Strengths Worldwide Brand Ranked 91st in top 100 Global Brands Combined Value of the brand was $3.1 Billion Dollars Profit has increased an average of 26% over the past
four years. Over 13,000 stores, 44 million customers per week,
and 146,000 employees.
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SWOT Analysis
Opportunities New markets domestically and internationally Announced a plan to increase stores from 11,000 to
40,000! Growing specialty market accounted for 15% of U.S
Coffee Purchases. Expected to grow 125% in the next 3 years.
Weaknesses Retail sales are derived from 77% beverages, 15%
food items, 3% whole coffee beans, and 5% coffee making equipment and other merchandise.
Low Employee Productivity
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SWOT Analysis (Continued)
Threats Intense Competition from restaurants, donut shops,
and local coffee shops. Pricing Strategy Internationally Extremely Volatile Coffee and Dairy Prices
Coffee is the largest cost input, accounts for 20% of COGS
Had to increase domestic prices by 5 cents recently, the second time in less than 12 months, due to dairy prices
There is an expected gap in Worldwide Coffee production between 2007-2008.
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STARBUCKS PERFORMANCE
The Company’s stock symbol is SBUX
$24.47 price per share as of 9/21/07
16,653 shareholders as of 12/06
The company never paid dividends on its common stock and plans to use the retained earnings in its business.
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Stock Mkt Cap $Mil
Sales $Mil
Growth Profit-ability
FinancialHealth
Starbucks Corporation 20,501 8,974 A A+ A
Industry Average 2,057 1,305 C+ C+ B-
McDonald's Corporation 65,309 22,780 B- A- A+
Yum Brands, Inc. 17,824 9,884 D+ A+ B+
Tim Hortons, Inc. 6,470 1,770 B+ A A
Cheesecake Factory, Inc. 1,755 1,416 B A A
Sonic Corporation 1,555 744 B A+ A-
Panera Bread Company, Inc. 1,387 931 A+ A+ A
Bob Evans Farms, Inc. 1,365 1,676 C- B A-
Rare Hospitality International, Inc. 1,164 1,025 A B+ B+
IHOP Corp. 1,143 356 D- B C+
Domino's Pizza, Inc. 1,079 1,442 D- A+ B
CBRL Group, Inc. 1,009 2,706 C A- B
Comparison to Major Competitors
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REVENUES GROWTH
PERCENTAGE OF THE REVENUE Retail stores
Grocery andwarehouse club
Branded products
Foodservice
Other initiatives
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REVENUE GROWTH
-
2,000,000
4,000,000
6,000,000
8,000,000
02 03 04 05 06
REVENUES
REVENUES
282828
REVENUES GROWTH
292929
REVENUES GROWTH
-
5,000
10,000
15,000
02 03 04 05 06
STORES OPENED @ YEAR END
USA
INTERNAT.
3030
Fiscal 2008 Targets30
· New store openings of approximately 2,600
· International openings by 200 stores
· Comparable store sales growth in the range of three to seven percent
· Total net revenue growth of approximately 18 percent
· Fiscal 2008 earnings per share growth of approximately 20 percent to 22 percent
Problems Found in Situation Analysis
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Is Starbucks overextending themselves by expanding their food base?
Can Starbucks continue to compete locally with their current pricing strategy?
Can Starbucks compete internationally with their current pricing strategy
Is Starbucks a “rich-man’s” coffee?
Primary and Secondary Problems
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Can Starbucks continue to compete locally with their current pricing strategy? Fewer Starbucks stores around Reduced customer base Not willing to pay increased prices
Can Starbucks compete internationally with their current pricing strategy? Regular cup of coffee in Egypt was 28 Egyptian
Pounds equivalent to a three course dinner. Coffee quality was not different then other
competing shops
Strategic Alternative for Solving Problems
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Should Starbucks reduce the price of their coffee?Should they reduce the quality of their beans?Should they not focus on environment awareness
programs to save money and purchase cheaper / non recycled products?
Should they continue to expand their other lines such as clothing and food to make money their and reduce the price of their coffee
Should Starbucks purchase Dunkin DonutsShould Starbucks open a “generic” branch of
itself?
Alternatives Discussed34
Should Starbucks reduce the price of their coffee? Reduce profits Gain more market share Not feasible
Should they reduce the quality of their beans? Starbucks IS STARBUCKS because of the quality of their beans Lose customer base Not advisable
Should they not focus on environment awareness programs to save money Starbucks prides themselves on being environmentally aware This change would not follow their mission and values
statement Not advisable
Alternatives Discussed35
Should they continue to expand their other lines such as clothing and food to make money there and reduce the price of their coffee Valid Strategic plan However, risk losing the “feel” of Starbucks by expanding
their product base. More “shop-like” Not advisable, “stick with what you know”
Should Starbucks purchase Dunkin Donuts Worth looking into Risk of blending brands, confusing customers Question social and environmental beliefs of the Starbucks
customers Continue to carry out Starbucks “mission and values” in a
Dunkin Donuts environment? Advised against this option
Alternatives Discussed36
Should Starbucks open a “generic” branch of itself? How would this be perceived? Could we do this and still maintain Starbuck's
mission and values? Can we hit a “happy medium” and still maintain
our environmentally aware ethics? This was a do-able, valid option to expand
Starbuck’s customer base without compromising their mission and values
Our Solution37
Starbucks welcomes LIL’ Bucks Cater to the “on-the-go” crowd Enhance drive-thru service Reduce product base
Focus on regular coffees No extra products such as sandwiches, ice creams, etc…
Less training for employees needed More casual environment, therefore less $$ needed to
support computers, fireplace, music, etc… Same quality of coffee and beans Maintain environmental awareness Maintain Community values Maintain and support current Starbuck’s mission and
value statements
Justification of LIL’S Bucks38
Great potential for expanding their market share into a different group of consumers
Capture some of the Dunkin Donuts consumer base
Attract consumers who could not afford Starbuck’s coffee before
Enable current customer base to have another alternative for faster “on-the-go” service along with increased Starbuck’s locations
LIL’ Bucks Implementation Strategy
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Same Mission and ValuesSame quality of beansSame dedication to community and
environmentSame interest and dedication to employeesSame welcoming environmentSame great service, just faster
LIL’ Bucks Implementation Strategy
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More casual environment No sofas or fireplaces No internet set up New trendy, comfortable, casual environment with the same
Starbuck’s feel More limited coffee selection
No specialty drinks Reduce price of running LIL’ Bucks Less training for employees Less costly equipment
Overall Welcoming to everyone Encourages current customer’s to utilize the new locations when
“on-the-go” Enables more customer’s to afford the same great taste Promotes a feeling of acceptance / trend when being seen with a
Starbuck’s coffee Allows a broader customer base to support an environmentally
aware company with a solid mission and value statement
LIL’ Bucks’ Prepares for Opening
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Current factories will be utilized to prepare needed inventory / equipment
Already established delivery routes with slight deviations to expand the current market base
Coffee and menu already established, just needs to be trimmed to fit new customer base
Promotional advertising with coupons, frequent visitor cards and other specials
International appeal as “everyone” is on the run
LIL’ Bucks’ Roll Out Plan42
In order to make this new venture work for Starbucks they must take some time getting the market used to the idea. This entails opening up “LIL’ Bucks” in select cities around the U.S. The markets we suggest focusing on are ones where one of two things is true.
1) Dunkin’ Donuts has a large market share. 2) Low-income areas where Starbucks is struggling. By focusing on these two segments, Starbucks will be able
to see the actual effects of the new stores. In addition to seeing immediate effects they will also be introducing the new stores directly into the heart of the target markets.
Roll Out Plan Continued43
With the role out of the new stores, there will be lots of advertising starting slowly about two months before the actual opening. The level of advertisements will grow steadily until two days before the grand opening. This will be the climax in the number of advertisements and then with the grand opening there will be a general pull back in the number of ads. This will maximize the brand awareness in the areas that are targeted. Due to the fact that the areas targeted are not high income we are not expecting the overall cost of the ad campaign to be too expensive.
In the ads, there will be an emphasis on the convenience of our locations as well as the low cost of the product offering. The low cost is a key but only in conjunction with the high quality of the coffee offered.
The stores will have well trained and helpful partners who will make every customers visit impeccable. Speed and quality will be the main goals of the baristas during the first few weeks. This will be done in order to get people talking about “LIL’ Bucks
“LIL-BUCKS” – PRIVATE LABEL (LEVERAGE STARBUCKS BRAND)
CONTINUED FOCUS ON COMPANY OVERALL GROWTH
MAINTAIN STARBUCKS: CULTURE, VALUES, GUIDING PRINCIPLES AND ‘SOUL’.
SOLUTION TO COMPETITIVE PRICING PROBLEM: DIVERSIFICATION AND INNOVATION.
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SUMMARY
Latest Company Updates
July 26, 2007: Starbucks plans to enter Argentinean Market.
July 26, 2007: Starbucks increases prices by 9 cents
July 24, 2007: Starbucks puts off plans to enter Indian Market.
July 20, 2007: Starbucks and Hershey’s announce collaboration.
June 22, 2007: Starbucks and Ethiopia reach licensing agreement.
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QUESTIONS ?
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STARBUCKS
GR 732 Marketing Management 2007
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