Starbucks case study
Types Of Document: Case Study
Subject Of Area: Business
Number Of Pages: 20 Pages/5000 words
Academic Level: Undergraduate
Style: APA
Requirements: THIS ASSIGNMENT IS ON THE 2015 STARBUCKS CASE FROM THIS BOOK
PROVIDED CASE BELOW COULD NOT PROVIDE FIGURES
Title Bundle: Strategic Management: Theory and Cases: an Integrated Approach, Loose-Leaf Version, 12th + LMS Integrated for MindTap Management, 1 Term (6 Months) Printed Access Card
Author Charles W. L. Hill; Melissa A. Schilling; Gareth R. Jones
ISBN 978-1-305-93135-0
Publisher Cengage South-Western
Publication Date January 7, 2016
Binding Quantity Pack; Ringbound; Digital, Other; Digital, Other; Digital, Other; Digital, Other; Digital, Other; Digital, Other; Digital, Other
Type Other
Price $156.95
Required
25-1
Case Introduction
In 2015, Starbucks was the undisputed world leader in specialty coffee retail, with over $16 billion in annual revenues (see Table 1). Starbucks had nearly 200,000 employees and over 21,000 Starbucks-branded cafes in 60 countries (about 10,700 of those were owned and operated by Starbucks itself, while 10,600 were operated by licensees and franchisees). In addition, Starbucks owned the Seattles Best Coffee, Torrefazione Italia, Teavanas Heaven of Tea brands, and more.Footnote
Table 1
Selected Data for Starbucks, McDonalds, and Dunkin Donuts, 2014
Selected Data for Starbucks, McDonalds, and Dunkin Donuts, 2014Enlarge Image
The company had grown remarkably fast over its short life and was still exceptionally profitable, with a 23.1% return on assets in 2014 (compared to 6.8% at Peets Coffee and Tea, 14.0% at Keurig Green Mountain Coffee, 13.4% at McDonalds, and 5.5% at Dunkin Donuts). However, its growth had not always been smooth; in fact, Starbucks had shuttered about 900 stores during 2008 and 2009. As its domestic market appeared to be approaching saturation, Starbucks began to focus on growing its international locations and diversifying into other product lines where its now-iconic brand could create value.
25-2
The History of Starbucks
In 1971, three Seattle entrepreneurs, Jerry Baldwin, Zev Siegl, and Gordon Bowher, started selling whole-bean coffee in Seattles Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick. By 1982, the business had grown to five bustling stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of U.S. operations for Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Through selling to Starbucks, Schultz was introduced to the three founders, who recruited him to bring marketing savvy to the loosely run company. Schultz, 29 years old, recently married, and eager to leave New York, moved to Seattle and joined Starbucks as manager of retail sales and marketing.
One year later, Schultz visited Italy for the first time on a buying trip. As he strolled through the piazzas of Milan one evening, he was inspired by a vision. Coffee is an integral part of the romantic culture in Italy; Italians start their day at an espresso bar, and return with their friends later. There were 200,000 coffee bars in Italy, and 1,500 in Milan alone. Schultz believed that given the chance, Americans would pay good money for a premium cup of coffee and a stylish, romantic place to enjoy it. Enthusiastic about his idea, Schultz rushed back to tell the Starbucks owners of his plan for a national chain of Starbucks cafes stylized on the Italian coffee bar. The owners, however, were less enthusiastic, and said that they did not want to be in the restaurant business. Undaunted, Schultz wrote a business plan, videotaped dozens of Italian coffee bar, and began to look for investors. By April 1986, he had opened his first coffee bar, II Giornale (named after the Italian newspaper), where he served Starbucks coffee. Following II Giornales immediate success, Schultz opened a second coffee bar in Seattle, and then a third in Vancouver, Canada. In 1987, the owners of Starbucks finally agreed to sell to Schultz for $4 million. The II Giornale coffee bars took on the name of Starbucks, and a star was born.
Convinced that Starbucks would one day be in every neighborhood in America, Schultz was intent on growing the company slowly, with a very solid foundation. He hired top executives away from corporations such as PepsiCo, and he was determined that future profits would be well worth early losses. At first, the companys losses almost doubled, to $1.2 million from fiscal 1989 to 1990, as overhead and operating expenses ballooned with the expansion.Footnote Starbucks lost money for 3 years running. The stress was hard on Schultz, but he stuck to his conviction not to sacrifice long-term integrity and values for short-term profit.Footnote In 1991, sales shot up 84%, and the company broke into the black. Everywhere Starbucks opened, people flocked to pay upwards of $2.00 and more for a cup of coffee. Enthusiastic analysts began to predict that Starbucks would top $1 billion by the year 2000, but Schultz preferred to play the companys early successes down, asserting that it is better to underpromise and overdeliver. The analysts, it turned out, had underestimated Starbucks successby 2000, it was taking in over $2 billion in revenues. In the 22 years between 1993 and 2015, Starbucks averaged an annual revenue growth rate of 26% a year.
25-3
Competition in the Specialty Coffee Segment
In the United States in 2012, specialty coffee accounted for 37% of all cups of coffee consumed, and for nearly 50% of all coffee revenue. Though the United States was the single largest buyer of unroasted coffee in the world in 2012, emerging markets were exhibiting strong growth, and many experts anticipated that Brazil would surpass the United States in coffee consumption sometime between 2014 and 2016.
Worldwide, independent coffee shops still make up the majority of coffeehouse locations, though prominent chains have emerged in many regions. Starbucks has long held a leading position in its home market, selling over 50% of the specialty coffee purchased in cafes in the United States over the last several decades, and easily dominating local specialty coffee competitors such as Caribou Coffee and Peets Coffee & Tea. However, in recent years, Both Dunkin Donuts and McDonalds began targeting Starbucks growing customer base with coffee offerings based on high-quality, Arabica brews at a lower cost than Starbucks beverages. With a very large number of existing stores (see Table 1), both competitors posed big threats if they were effective in wooing customers away from Starbucks. Furthermore, Starbucks faced other, more entrenched competition in many of its international markets (see Figure 1 for a breakdown of market share by regional areas).
Figure 1
Specialty Coffee Market Shares by Region
Specialty Coffee Market Shares by RegionEnlarge Image
Data from 2008 Bernstein Research Report, Starbucks: Getting Its Buzz Back.
25-3a
Caribou Coffee
Founded in 1992, Caribou Coffee operates 470 coffeehouses in about 20 states and in many international markets (particularly in the Middle East and South Korea). Its 2012 sales were $326.5 million, and then the company was taken private in 2013. Its stores are designed to look like mountain lodges and sell only specialty coffee, baked goods, and coffee brewing supplies. However, like Starbucks, the company also sells roasted coffee to grocery stores and has a licensing agreement to make single-serve K-cups for home brewing using Keurig machines.
25-3b
McDonalds
Founded in 1948 in San Bernardino, California, McDonalds grew to become the worlds largest quick-service restaurant. Boasting about 36,000 restaurants in 119 countries and $27.4 billion in sales (see Table 1), McDonalds is probably the best-known restaurant in the world. Though its menu is most famous for hamburgers and fries, in the last 2 decades McDonalds has developed healthier food items in response to social pressure mounted against burger chains. In 1993, a McDonalds licensee, Ann Brown, created the McCafa coffeehouse style outlet that would offer high-end coffee beverages similar to Starbucks. In response to its early success, McDonalds also introduced a line of special coffee drinks called McCaf into its other restaurants.
25-3c
Dunkin Donuts
Originally founded as the Open Kettle Doughnut shop in Quincy, Massachusetts, in 1948, founder William Rosenburg changed its name to Dunkin Donuts in 1950 and began franchising the shops 5 years later. The popular franchise became famous for its wide variety of doughnuts, and expanded to become the worlds leading doughnut chain, with 11,000 outlets in about 30 countries. Dunkin Brands Group also owns Baskin Robbins and Togo Sandwiches, and collectively the chains earned $748.7 million in sales in 2014 (see Table 1). Though it had long offered coffee, the company did not begin offering espresso drinks until 2003.
25-4
Redefining A Cup of Joe
Starbucks coffee quality begins with bean procurement. Whereas historically Americans had drunk a commoditylike coffee composed of Arabica beans mixed with less-expensive Robusta filler beans, Starbucks coffee is strictly specialty varietals of Arabica beans, and the company goes to great lengths to ensure that only the highest-quality beans are used. Starbucks bean procurement standards are demanding, and the company conducts exacting experiments in order to get the proper balance of flavor, body, and acidity. Brews are subjected to cuppinga process similar to wine tasting that involves inhaling the steam (the strike and breaking the crust), tasting the coffee, and spitting it out (aspirating and expectorating)to evaluate aroma and taste.
From the companys inception, it has worked on developing relationships with the countries from which it buys coffee beans. Prior to Starbucks rise, Americans were…
