STARBUCKS- GOING GLOBAL FAST

Prof: Hamad alghadeerStudent: Aasem Alsayyed Soliman (201215004)

BACKGROUND

Starbucks Corporation is an American global coffee company and coffeehouse-chain based in Seattle, Washington.

The first Starbucks opened in Seattle, Washington, on March 30, 1971 by three partners that met while students at the University of San Francisco: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker.

They sold beans and coffee makers. Customers were encouraged to learn how to grind the beans

and make their own freshly brewed coffee at home. Starbucks name came from a character in classic novel Moby

Dick, published in 1851, which takes place in sea. Logo was chosen with the start of the company in the year

1971. The founders wanted the logo reflects the historical relationship between coffee and sailing traders.

In 1987, the original owners sold the Starbucks chain to former employee Howard Schultz and quickly began to expand.

COMPANY GROWTH

Starbucks grew from 17 coffee shops in Seattle 15 years ago to over 20,891 outlets in 62 countries.

including 13,279 in the United States, 1,324 in Canada, 989 in Japan, 851 in China, 806 in the United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in the Philippines, 171 in Thailand and 10 in India.

The company planned to open a net of 900 new stores outside of the United States in 2009.

Since 1987, Starbucks has opened on average two new stores every day.

The first store outside the United States or Canada opened in the mid-1990s, and overseas stores now constitute almost one third of Starbucks' stores.

SOME CHALLENGES FACING THE COMPANY

Starbucks faces antiglobalization movement.-During the World Trade Organization talks in November 1999, Starbucks was among the aims of protesters , a symbol, to them, of free-market capitalism.

Dropping Sales from ($10.4 billion) in 2008 to ($9.8 billion) in 2009, and dropping in profits from $673 billion in 2007 to $582 billion and $494 billion in 2008, 2009 respectively.

SOME CHALLENGES FACING THE COMPANY

The firm closed 475 stores in the U.S. in 2009 to reduce costs.

Saturated market with over 10,000 stores scattered across the United States and Canada. (there are still eight states in the United States with no Starbucks stores.)

self-cannibalization (opening stores in the same area)

SOME CHALLENGES FACING THE COMPANY

- global expansion poses huge risks for Starbucks, it makes less money on each overseas store because most of them are operated with local partners(it reduces the company’s share of the profits to only 20 percent to 50 percent).

Starbucks faces cultural challenges. After riding the wave of successful baby boomers (who born from 1946 to 1964) through the 1990s, the company faces a hostile reception from its future consumers, the twenty- or thirty-somethings of Generation X (who born from 1960 to 1980) — cultural changes.-The company knows that because it once had a group of twentysomethings ignored for a market study.

SOME CHALLENGES FACING THE COMPANY

The company facing employees dissatisfaction (Dissatisfaction over odd hours and low pay is affecting the quality of the service and even the coffee itself)—feeling overworked and underappreciated.

SOME CHALLENGES FACING THE COMPANY

Starbucks faces competition from competitors such as Nestle, Dunkin’ Donuts and McDonald’s and their new McCafés .

Starbucks faces steep competition in Japan, including Starbucks lookalikes.-One of the most popular brands, called Mt. Rainier, is emblazoned with a green circle logo that closely resembles that of Starbucks.

STARBUCKS AROUND THE WORLD

QUESTION 1

Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global markets.

CONTROLLABLE Product

-Hot and Cold beverages, pastries, snacks, etc…

Price- Starbucks charges a premium prices for their products

Promotion-The Company has controlled its promotional strategy and has saved a lot of marketing cost by mainly relying on worth of mouth and the company has good brand name in national market as well as in overseas market.

Channel of distribution- Starbucks have 20,891 outlets in 62 countries which shows that the company has good controlled over the channel of distribution.

CONTROLLABLE

Research and development-The Company has also controlled over its research and development process such as in 800 locations it has installed automatic espresso machines to increase the speed of service and it has also offered the prepaid card which clerks swipe through a reader to deduct a sale, thus the company cuts transaction times in half.- Starbucks launched Starbucks Express its boldest experiment yet, it blended java, Web technology, and faster service, At about 60 stores in the Denver area, customers can pre-order and prepay for beverages and pastries via phone or on the Starbucks Express Web site.-They just make the call or click the mouse before arriving at the store, and their beverage will be waiting.-Starbucks continues to try other fundamental store changes. It announced expansion of a high-speed wireless Internet service to about 1,200 Starbucks locations in North America and Europe.

UNCONTROLLABLE

Economic Forces.-Economic conditions.-localprice range of commodities

Competitive Force.-Local competitors.-Imitators Coming in to grab the market share.-Coffee is a beverage that has a worldwide appeal. Starbucks

entering theglobal market might face stiff competition from local coffee brands

indifferent countries. While Starbucks may hold an advantage in

terms ofbrand recognition worldwide, local brands can hold an advantage in

termsof local appeal and cultural familiarity.

UNCONTROLLABLE

Cultural Force.-Different cultures.

-Capturing the local cultural appeal of different countries may prove to be

challenging especially to a brand going global. There has to be a certain amount of

standardization while applying the right localization.

-The solution is to overcome cultural challenges by studyingAnd researching on coffee consumptions habits of locals.

Political/legal Force.-Different laws and regulations in different countries.-Starbucks had a lot of issues regarding overworked but underpaid employees as it continues its growth globally and dealing with local rules and regulations.-For example, France has very generous labor benefits as opposed to what Starbucks is currently implementing.

QUESTION 2

What are the major sources of risk facing the company and discuss the potential solutions?

RISKS

Saturation of United States market.-There are still eight states in the United States with no Starbucks stores.-Prevent Self-Cannibalism----Stores must be strategically located.-Starbucks have to Offer new food and other non-coffee items-Market research should be carried out before investing a new store and realize the fact that the market can become saturated.-Go global. it will have to depend on overseas growth to maintain growth rate.-Licensing and franchising for foreign investors.

ANSOFF MATRIX

RISKS

Problems of changing generation.-Consumers 35 years and older tend to consumer coffee more often than the 18 - 25 age group-Market research should be carried out to study consumptions habits for younger consumers.-Starbucks should offer innovations such as wireless networks to its customers to overcome challenge in order to attract the next generation of customers.

Dissatisfaction of odd hours and low-pay.-Positive reinforcement which leads to higher feelings of job satisfaction- Improve the employee satisfaction. So, the quality of service as well coffee increases

QUESTION 3

Critique Starbucks overall corporate strategy.

FAULTS

Eight cities in U.S. remained untapped. Relying on word of mouth, Starbucks spends

just 1% of revenues on advertising. Low payment to employees. “predatory real estate” strategy—paying

more than market-rate rents to keep competitors out of a location.-Not only it is claimed as an unfair attempt to drive out small, independent competitors who could not afford to pay inflated prices for premium real estate, this also leads to monopoly and then leaves customers annoyed with fewer choices.

FAULTS

Stores Expansion in the U.S. -Growing continuously rapidly, Starbucks has done clustering several locations in a small geographical area. Doing so eventually will inevitably act to cannibalize existing locations same store sales.

Stores Expansion Globally -Stores expansion in other countries too rapid to concern the real preferences and habits of local consumers and competitors.

FAULTS

Predatory real estate strategy -Buying out competitors' leases -Not only it is claimed as an unfair attempt to drive out small, independent competitors who could not afford to pay inflated prices for premium real estate, this also leads to monopoly and then leaves customers annoyed with fewer choices.

FAULTS

Labor Disputes & Involvement in Lawsuit.-Because of Starbucks’ payment and policies toward its part-time and full-time employees do not compatible with working hours and duties.- 470 Frustrated store managers sued Starbucks in 2001 for allegedly refusing to pay legally mandated overtime.

QUESTION 4

How might Starbucks improve profitability in Japan?

IMPROVING PROFITABILITY IN JAPAN

Reduce Price / Increase Benefits.-targeting mid-income levels were frequent buyers and grew substantially.

Offering new beverages according to the Asian or Japanese culture and provide wider range of different tea or soft drinks –Tea drinks will increase popularity because their perceived value of healthy benefits.

Offering special, Japanese food in Starbucks stores, Japanese candies, cakes or sweets or even snacks – Starbucks’ may become more Japanese!

Following the health conscious trend by reducing caloric and fat content .

Online, phone ordering and drive-through service for busy Japanese.

QUESTIONS&

ANSWERS

THANK YOU