Hbr Case Starbucks
Starbucks We take Coffee seriously! Starbucks Problem Statement • Is this best possible way to grow? • How much to extend in the quest for growth? • How do tap / react the opportunities? About Starbucks • Speciality coffee company – Arabica beans • CEO – Howard Schultz • 1000 retail locations in 32 markets throughout North America and 2 stores in Tokyo About Starbucks
Channels • Retail Outlets – Bread and Butter – An experience store (Third Place) – Contribution to revenue: 86% – Educated customers and highly trained employees – Disciplined approach to Real Estate • Mostly owned • Excellent design • Store clustering • Role of Estate Managers and “street sniffers” – Growth plans of 20 – 40 stores p. m / 2000 stores by Year 2000 – International growth Plans About Starbucks
Channels • Specialty sales – Agreements with retailers, wholesalers, restaurants and service providers – Revenue growth potential – Increased name recognition – Partnerships with companies that are leaders in their field – Partnerships involved • Serving Starbucks Coffee • Product Development • Store Development About Starbucks Channels • Specialty sales – Agreements with retailers, wholesalers, restaurants and service providers – Revenue growth potential – Increased name recognition – Partnerships with companies that are leaders in their field – Partnerships involved • Serving Starbucks Coffee • Product Development • Store Development
About Starbucks Channels • New Ventures – New opportunities for coffee based products – Exploring new channels – Dreyer’s Ice-cream – Bottled Frappuccino, with Pepsi – Penetration into the grocery channel (Portland, Chicago) Mail order – For customers away from a Starbucks retail store – For regular home users – Direct mail program – “Encore” • Monthly shipments of ground or whole bean coffee • About Starbucks
Business Model • Sourcing: – Diversified sourcing portfolio – Close working relationship with exporters – Purchased coffee of very high quality from the exporters – Followed a three sample approach for QA – Foresee the issue of sustainable procurement of high quality coffee Roasting – Roasting is a key process in the activity chain. – Signature roasting curves – Packaging / Shelf life • About Starbucks Business Model • Supply Chain Operations – Accurate forecasting process – Closed loop system from manufacturing to distribution – Willing to test new waters in terms of suppliers
About Starbucks Organization • Human Resources – Flat Structure – Partner (Not employee) – Emphasis on communication – Higher wages + Insurance + Employee Stock Options – 24 hours training program for ALL employees – Recruitment is given high importance About Starbucks Organization • Organization Culture – 6 guiding principles – Own set of values – Passion at work – Diversity – Excellence Financial – Rapidly increasing stock price and EPS – High expectations on profitability – ‘BUY’ rated by 4 prominent investment companies – No franchisee retail outlets –
High dependence on equity and debt financing (DE ratio of 1. 6) • About Starbucks Organization • Marketing – Retail business the source of brand equity – Positioned as an experience – Preferred outlet ? Preferred brand – Remaining true to its core ? COFFEE – A total coffee experience Competitive Analysis Resources Type Organizational Resources Resource Flat Organizational Structure Strong Leadership – Howard Schultz Integrated Supply Chain Physical Resources Prime real estate for retail outlets
Technological Resources Human Resources Innovation Reputational Resources R & D – Proprietary ‘Roast Curves’ State of the Art Manufacturing Equipment Highly Trained ‘Baristas’ ‘Value driven profit pursuit’ Frappuccino – Innovation platform National Brand Relationship with ‘Exporters’ (Suppliers) Customer Service and Quality Products Competitive Analysis Capabilities • Real Estate Acumen • Supply Chain • Blends and Roast Curve • ‘Third Place’ Experience • Employee Training Program
Competitive Analysis Core Competency • Real Estate Acumen • Supply Chain Management Competitive Analysis • Large supply needs for high quality coffee • Finding good people, which had service expertise that could replicate values and culture of Star bucks • Motivate real estate staff to achieve target store opening • Supporting the BU in an integrated, effective and efficient method • Challenges related to design of nationally consistent merchandising program Competitive Analysis
INIMITABLE Historical – Real estate Capability Social Complexity Supply Chain Strength RARE Expertise in Blending and Roasting Operations VALUABLE Business Acumen NONSUBSTITUTABLE Employee Training & Development COMPETITIVE ADVANTAGE Competitive Analysis • • Exploited Opportunities due to valuable capability Increasing Coffee Stores – Utilize the growth in coffee consumption due to change in consumer trends: 1. 2. 3. Adopting a healthier life style Growing need for social interaction Growing awareness about coffee •
Venture in specialty Stores with Dreyer’s and Pepsi co, etc. to tap the expected growth in sales from 19%-54% in 1999 Real Estate Opportunity – Through the concept of store clustering Starbucks maximized its market share and reputation in various regions Doppio Strategy – Took advantage of high coffee consumption areas such as train stations, malls, etc to increase the customer base International Brand Image – Exploit the growing desire for western Brands and high coffee consumption rates in different countries • • • Competitive Analysis
Rare Capability Extensive R&D in roasting operations thereby making Starbucks signature roasts difficult to duplicate Costly to imitate Historical – Strong and Loyal Real Estate Agent network Social Complexity – Integrated Supply chain operations comprising of 4 business units: • Retail stores units • Specialty sales and wholesale channels • Mail order business • Grocery channels Difficult to Organize Employee Training & Development to imbibe in them a sense of Starbucks culture and values to become more customer oriented
Recommendations – Selection Process for Speciality Sales should be more stringent – Not just volume driven – Customer Experience should be prioritised – Periodic Review of partner outlets – Opt for McDonalds – Starbucks brand should be retained – Packaged Beverages – way forward – Based on response of Frappuccino pace the introduction of new products – Rigour vs Variety – Concentrate on existing channels and opportunities only. Thank you!
