Starbuck PDF

S T A R B U C K S I N C.
Strategic Management
Report
A Strategic Pathfinder for STARBUCKS
Version 1.0 0
Fachhochschule Osnabrck
Faculty of Business Management and Social Sciences
Master in International Business and Management
Strategic Management Report A Strategic Pathfinder

for STARBUCKS
Assignment for the module Strategic Management
Summer Semester 2014
Lecturer: Mrs. Kaur-Lahrmann
Authors: Elin Lee (598736)

Marina Ristic (637822)
Maximilian Franke (634580)
Submission date: 6th of June 2014
____________________________________
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be
accurate and reliable at the time of publishing. In consideration of human and / or mechanical errors, either
during the process of compiling the report or production, the author accepts no liability whatsoever for any
damage resulting from errors, inaccuracies or omissions affecting any part of the publication.
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Table of Content
Executive Summary ................................................................................................................................. 3

1. Introduction ..................................................................................................................................... 5
2. Problem Definition .......................................................................................................................... 6
3. Report Objective.............................................................................................................................. 6
4. Report Framework .......................................................................................................................... 6
5. Theoretical Framework ................................................................................................................... 7
6. Analysis of Current Situation ......................................................................................................... 14
6.1. Internal Analysis ........................................................................................................................ 14
6.1.1. Company Background Analysis.............................................................................................. 14
6.1.2. Internal Characteristics Analysis............................................................................................ 19
6.1.3. Strategy Analysis ................................................................................................................... 21
6.1.4. Financial Performance Analysis ............................................................................................. 28
6.1.5. Internal Factor Evaluation Matrix.......................................................................................... 30
6.2. External Analysis........................................................................................................................ 32
6.2.1. Macro-Environmental Analysis ............................................................................................. 32
6.2.2. Industry Analysis.................................................................................................................... 37
6.2.3. External Factor Evaluation Matrix ......................................................................................... 39
7. Assessment Analysis (Fulcrum) ..................................................................................................... 41
7.1. Current Performance Assessment............................................................................................. 41
7.2. Expected Performance Assessment .......................................................................................... 44
7.3. Developing Strategic Focus ....................................................................................................... 47
8. Solution Analysis............................................................................................................................ 50
8.1. Strategic Alternatives ................................................................................................................ 50
8.2. Goals and Evaluation Criteria .................................................................................................... 51
8.3. Strategy Selection...................................................................................................................... 53
9. Recommendations......................................................................................................................... 59
Appendices ............................................................................................................................................ 63
Bibliography........................................................................................................................................... 69
Declaration ............................................................................................................................................ 73
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Executive Summary
Starbucks is a global company operating in the coffee retail market since 1972. The
company, which has positioned itself as a seller of premium coffee products, has greatly
expanded its market position and presence in the past two decades. Today, the company is
serving coffee enthusiasts in 64 countries and has grown to become the worlds largest
coffee house company. Starbucks seemingly undisputed market leadership position can be
attributed to the companys clever product diversification and market expansion strategies.
In response to changing consumer needs and demand, Starbucks has evolved from a mere
seller of coffee products to full-fledged chain restaurant, offering not only coffee products
but also other beverages, foods, and merchandise. Moreover, stagnating market growth in
developed economies has prompted the company to move into emerging economies with
high growth potential. Countries like China, India, and Brazil have been portraying increasing
consumption rates of coffee products for years and are likely to surpass coffee consumption
in developed countries by 2020.
Despite a positive market outlook, Starbucks is in need of strategic counseling as the

company faces not to be underestimated challenges in the short- to medium-term. Those
challenges emanate from established competitors like McDonalds and Dunkin Donuts who
defy Starbucks market leadership position by driving aggressive low-pricing strategies in
established and emerging markets. Moreover, new trends in the coffee industry have
opened up new segments with high growth potentials. Starbucks remains unsure how tackle
new segments and what impact trends could have on its product portfolio.
This report is meant to be a strategic pathfinder that aims at illuminating different strategic
alternatives in the light of the many opportunities and threats that lie ahead. The report will
also give advice on how to utilize internal strengths to capitalize on opportunities and how
to minimize weaknesses to avoid threats.
The internal position of Starbucks is strong, indicating that the company excels in utilizing
strengths to create competitive advantages. Core strengths of the company are its excellent
brand image, customer service, supply chain management, and financial position. With the
help of the latter capabilities, Starbucks is able to retain its market leadership position,
improve the ability to open new stores at top-sites, and mitigate volatilities in global coffee
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bean prices. One major weakness is that continuous adaptations and additions to the
product portfolio have resulted in various products lines becoming unprofitable
(overextension). The external position of Starbucks is balanced, indicating that the company
is only marginally able to respond to external forces. Since the economic downturn in
2008/2009, customers have grown more price-sensitive and low switching costs in the
industry have made them more prone to move to competing brands. Moreover, saturated
markets at home have increased the competitive pressure on Starbucks. Having missed the
first-mover advantage in the single-serve coffee segment, Starbucks has to quarrel with a
number of competitors.
Despite heavy challenges in the external environment, the analysis has shown that Starbucks
is well-positioned to confront expected changes in the industry. The company is advised to
continue key strategies on corporate level: aggressive expansion strategy in emerging
markets, product development/positioning strategies for niche markets, retrenchment
strategies for unprofitable product lines, and alliances for reputable yet slow-growing
product lines. Whilst the latter strategies are enough to maintain and defend current
markets shares, the company must undertake additional strategic changes to achieve a
sustainable market leader position in the short to medium-term. Here it is important to
increase marketing spending to raise awareness among customers, retain the premium-
pricing strategy to boost brand image, establish trend-scouting facilities to foresee emerging
consumer needs, and hedge against volatilities in the market prices of coffee beans by
employing forward contracts or similar hedging strategies.
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1. Introduction
Being the worlds largest coffee company both in terms of sales and market share, Starbucks
Coffee Company (hereinafter referred to as Starbucks) has managed to position itself as a
distinguished and successful provider of high-quality coffee products, attracting millions of
customers worldwide. The company, which was founded in Seattle in 1971 as a mere roaster
and retailer of whole bean and ground coffee, tea, and spices, first entered the market as a
seller of brewed coffee in 1985, when Howard Schulz, former employee and current CEO,
realized the huge potential of selling brewed specialty coffee. Following the opening of
eleven stores in the Seattle area, Starbucks began its expansion first in the north-western
United States and then across the rest of the country. Global expansion did not take place
until Starbucks initial public offering (IPO) in 1992, which further highlighted Mr. Schulzs
intention to turn Starbucks into a truly global company. Its first international store opened in
Tokyo in 1996, followed by Singapore and the Philippines. In the early 2000s, Starbucks
expanded into other important key markets, covering most Asian countries and also moving
into the European, Australian, and Latin-American market. Today (2011), the company has
16,635 stores in 50 countries of which 8,832 are wholly-owned stores and 7,803 licensed
stores. By forming alliances with major coffee producers and retailers as well as acquiring
emerging competitors, Starbucks has managed to extend and eventually consolidate its
market position in recent years. The company is also following hot trends in the coffee
market, such as single-serve coffee or the delivery of ready-to-be-served coffee to luxury
hotel rooms. Moreover, Starbucks has realized that emerging markets, most prominently
China, have huge untapped potentials that need to be exploited if the company wants to
gain and maintain a competitive edge over competitors. The aggressive expansion strategy
that Starbucks is currently pursuing in China can thus be understood as a clear message to
competitors that it will not render the number one spot in the global coffee market without
a fight. In fact, Starbucks future could not look any brighter. With third quarter (2011) sales
figures exceeding the five percent threshold in both the USA and internationally, and new
shops opening in China almost on a daily basis, the company seems have chosen the correct
strategic path for the upcoming years. In the words of Starbucks CEO Howard Schulz,
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Starbucks has never been healthier, more connected to customers and partners, or better
positioned to go after tremendous business opportunities that lie ahead.1
2. Problem Definition
Despite the current success and seemingly undisputed market position of Starbucks, the
company faces not to be underestimated challenges in the short- to medium-term. Analysts
are reminded that direct competitors, such as Dunkin Brands and McDonalds are aiming to
gain and attract customers globally who otherwise may go to the pricier Starbucks stores.2
Moreover, the company remains unsure as to what impact its growth strategy in emerging
market will have on corporate performance whether perceived opportunities are really
sustainable or actually short-winded. Saturated home markets and the rising importance of
niche markets pose further challenges for the company. Facing uncertainty, Mr. Schultz is in
need of a clear strategic plan for the short-to medium-term.
3. Report Objective
This report aims at helping Mr. Schultz to better illuminate and pinpoint the different
strategic paths that branch out in front of the company. In a sense, this report is meant to be
a strategic pathfinder with the objective to help Starbucks better assess its current strategic
position and if necessary propose a new strategic approach in the light of the many
opportunities, threats, strengths and weaknesses that surround the company.
4. Report Framework
The framework of this report reflects the phases a comprehensive strategic analysis (see
appendix 1).3 In the first phase, the current situation of the Starbucks is analyzed by means
of highlighting strengths and weaknesses (internal analysis) and opportunities and threats
(external analysis) that have an impact on the companys current strategic performance
both on corporate and competitive level. The effectiveness of the current strategy is
determined by considering past and current financial ratios (financial analysis). In the second
1
Cf. Reed, M., Brunson, R. (2011): p. 175
2
3
Cf. Boardman, A., Vining, A. (1999): p. 3
6
phase, the current performance of Starbucks is summarized and judged based on whether or
not it fulfills corporate expectations. Depending on the outcome, a rationale for action is
raised and broad strategic directions are formulated. In the third phase, several reasonable
and mutually-exclusive strategic alternatives are generated. Those alternatives are analyzed
based on the goals and objectives of the company. The most attractive strategic alternative
(or alternatives) is determined by the degree of impact it will have on Starbucks
performance goals and value chain. The last phase consists of the recommendation. Here,
the proposed strategy (or strategies) is justified.
5. Theoretical Framework
Backing the comprehensive strategic analysis will be a multitude of strategic management

tools and methods which have been deemed relevant for solving the problem at hand. The
relevance and applicability of the tools will be explained in this chapter to avoid lengthy
explanations in the main body of this report.
BCG MATRIX
The BCG Matrix was applied in order to explore the growth potential of Starbucks four
major product categories. The matrix divides product categories into four segments based
on their market share (x-axis) and market growth (y-axis). Since it was impossible to find
accurate and up-to-date market share figures for Starbucks product categories, the matrix
was modified according to what sales growth categories portray (y-axis) and how profitable
they are (x-axis). Consequently, categories were allocated to four distinct portfolio
segments:
1. Stars: product categories which display high sales growth and substantially
contribute to overall profits.
2. Question marks: product categories which display high sales growth, however only
contribute little to overall profits.
3. Cash cows: product categories which display low sales growth but still contribute
substantially to overall profits.
4. Dogs: product categories which display low sales growth and contribute little (or
nothing) to overall profits.
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PRODUCT-CUSTOMER ANALYSIS
The Product-Customer Analysis was applied to highlight the relationship between Starbucks
different product categories and customer groups. The analysis highlights which customer
groups prefer which product categories, and what they value most in each product category.
For Starbucks, this information can be important if the company has to decide which product
lines to develop or discard.
PORTERS GENERIC STRATEGIES
Porters Generic Strategies were used as a means of evaluating Starbucks current strategic
stance on competitive level. This model describes how Starbuck pursues competitive
advantages across its market scope. With Porters Generic Strategies, competitive advantage
is defined either by offering lower costs than competitors or by differentiating product
offerings to an extent that allows the company to command higher prices. Those strategies
are applied either in a wide market context (industry-wide) or in a narrow market context
(focus on selected markets). Consequently, four distinct business strategies can be
determined:
1. Overall cost-leadership: the company offers lower prices than competitors to a wide
selection of customer groups.
2. Differentiation: the company offers distinct and unique product categories which
cannot be emulated by competitors at a higher price and to a wide selection of
customer groups.
3. Cost focus: the company offers lower prices than competitors in niche markets.
4. Differentiation focus: the company offers distinct and unique product categories
which cannot be emulated by competitors at a higher price in niche markets.
INTERNAL FACTOR EVAULATION MATRIX (IFE)
The IFE Matrix was used to evaluate major strengths and weaknesses in functional areas of
Starbucks and determine whether or not the company has a strong or weak internal
position. The IFE Matrix can be compiled using the following four steps:4
4
Cf. Maxi-Pedia (2014a): Online publication
8
1. Compile key internal factors: key internal factors are the strengths and weaknesses
that can be complied from the internal analysis of Starbucks.
2. Assign weights: assign weights that range from 0.00 to 1.00 to each factor. The
weights should be assigned according to each factors importance to Starbucks
overall business strategy.
3. Assign ratings: assign ratings on a scale from 1 to 4. A rating of 1 represents a major
weakness, a rating of 2 represents a minor weakness, a rating of 3 represents a minor
strength, and a rating of 4 represents a major strength.
4. Multiply and sum: multiply the weights with the ratings and sum all products to
reach the final score.
The average score is 2.5. A score exceeding the average indicates a strong internal position.
A score that is under the average indicates a weak internal position.
PESTEL ANALYSIS
The PESTEL analysis was applied to evaluate the macro environment to which Starbucks is
exposed. It helps the company to better determine external factors that might have an
influence on the companys performance in the global coffee market. Originally, the PESTEL
analysis has been designed to evaluate macro-environmental influences on industries in
certain countries. However, since Starbucks is operating in a global environment, the PESTEL
analysis was fine-tuned to determine the macro-environmental influences on the coffee
industry within a global context. The analysis evaluates six macro-environmental variables:
1. Political Environment: are there any governmental regulations that would inhibit
Starbucks in the global coffee market?
2. Economic Environment: has the recent economic crisis had any effect on disposable
income of customers?
3. Social Environment: how has the social attitude towards coffee changed over the
years? How far developed is the coffee culture?
4. Technological Environment: what key technological changes in the production and
consumption of coffee have taken place over the years?
5. Ecological Environment: how important is environmental stewardship in the
industry?
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6. Legal Environment: how stringently are intellectual property rights enforced?
PORTERS FIVE FORCES
The Porters Five Forces Model was used to determine Starbucks competitive position in the
global coffee market. It helps Starbucks get a notion about the extent of competitive rivalry
in the industry. In essence, five forces determine the attractiveness of the market:
1. Threat of established rivals: how saturated is the market with established

competitors and how strong is their market position?
2. Threat of new entrants: at what pace are new entrants swarming the market and
how strong are they?
3. Threat of substitutes: how well positioned are substitute products and do they pose
a threat to coffee products?
4. Bargaining power of suppliers: how strong is the position of coffee bean farmers to
dictate coffee bean prices?
5. Bargaining power of buyers: how strong is the position of customers to switch
between different bands and demand lower prices?
EXTERNAL FACTOR EVALUATION MATRIX (EFE)
The EFE Matrix was used to assess Starbucks current business conditions. It helps Starbucks
to better visualize and prioritize the opportunities and threats to which the business is
exposed. The EFE Matrix can be compiled using the following four steps:5
1. Compile key external factors: key external factors are the opportunities and threats
that can be complied from the external analysis of Starbucks.
2. Assign weights: assign weights that range from 0.00 to 1.00 to each factor. The
weight should be assigned according to each factors importance to Starbucks
3. Assign ratings: assign ratings on a scale from 1 to 4. The ratings indicate how
effective the companys current strategy responds to each factor. A rating of 1
represents a poor response, a rating of 2 represents a response below average, a
5
Cf. Maxi-Pedia (2014b): Online publication
10
rating of 3 represents a response above average, and a rating of 4 represents a
superior response.
4. Multiply and sum: multiply the weights with the ratings and sum all products to
reach the final score.
The average score is 2.5. A score exceeding the average indicates a strong strategic ability to
respond to external factors. A score that is under the average indicates a weak strategic
ability to respond to external factors.
SWOT ANALYSIS
The SWOT Analysis was used to summarize internal strengths and weaknesses as well as
external opportunities and threats. It helped paving the way for the ensuing TOWS Analysis
by redirecting the focus on key issues within and outside the companys boundaries.
TOWS ANALYSIS
The TOWS Analysis was applied to highlight four broad strategic directions from which
possible strategic alternatives can be drawn. The analysis matches strengths and weaknesses
with opportunities and threats in order to arrive at four mutually-exclusive strategy types:6
1. Maxi-Maxi Strategies: strategies that use strengths to maximize opportunities.

2. Maxi-Mini Strategies: strategies that use strengths to minimize threats.
3. Mini-Maxi Strategies: strategies that minimize weaknesses by taking advantage of
opportunities.
4. Mini-Mini Strategies: strategies that minimize weaknesses and avoid threats.
SPACE MATRIX
The SPACE Matrix was used to determine which nature of strategy Starbucks should
undertake in the short- to medium-term. This strategic tool is meant to formulate a strategy
based on the competitive position of Starbucks. The matrix is constructed by plotting
calculated values for the competitive advantage and industry strength dimensions on the X-
6
Cf. MindTools (2014): Online publication
11
axis. Variables for the environmental stability and financial strength dimensions are plotted
on the Y-axis. Five steps are necessary to compile a SPACE matrix:7
1. Determine values for dimensions: values for each dimensions are determined:
a. Competitive advantage (CA): values for calculating the competitive advantage
are taken from Current Performance Assessment Analysis.
b. Industry strength (IS): values for calculating the industry strengths are taken
from the Porters Five Forces Analysis.
c. Environmental stability (ES): values for calculating the environmental stability
are taken from the PESTEL Analysis.
d. Financial strength (FS): values for calculating the financial stability are taken
from the Financial Performance Analysis.
2. Rate the dimensions: the CA and ES dimensions are rated using a scale from -6
(worst) to -1 (best). The IS and FS dimensions are rated using a scale from +1 (worst)
to +6 (best).
3. Find average scores of dimensions.
4. Add average scores: add the average score of CA to that of IS, and that of FS to ES to
arrive at the total X-axis (Y-axis) score.
5. Plot scores to the graph: plot both scores to the graph and draw a line from the
center to the XY-intersection.
Depending into which quadrant the line points, the nature of the proposed strategy can
either be aggressive (top-right quadrant), conservative (top-left quadrant), defensive
(bottom-left quadrant), or competitive (bottom-right quadrant).
QSP MATRIX
The Quantitative Strategic Planning Matrix (QSPM) was utilized for evaluating possible
strategies and comparing them as alternatives among each other. The QSPM helped to set
priorities as to which strategies are more attractive for Starbucks taking into consideration
their goals and objectives. Five steps are necessary to compile a QSPM:8
7
Cf. Maxi-Pedia (2014c): Online publication
8
Cf. Maxi-Pedia (2014d): Online publication
12
1. Provide a list with internal and external factors: strengths and weaknesses can be
compiled from the IFE Matrix. Opportunities and threats are taken from the EFE
Matrix.
2. Identify strategic alternatives: strategic alternatives are taken from the TOWS
analysis.
3. Assign weights: weights are assigned to key internal and external factors. Those
weights are taken from the IFE and EFE matrices.
4. Assign attractiveness scores: attractiveness scores are assigned based on whether
the factor makes a difference in the decision about which strategy to pursue. If the
answer is yes, then the score of 1 = not attractive, 2 = somewhat attractive, 3 =
reasonably attractive, and 4 = highly attractive. If the answer is no, the score will be
0.
5. Calculate total attractiveness score: multiply the weights with the attractiveness
scores and sum up the products.
The strategic alternative with the biggest total attractiveness score portrays the most
attractive strategy for the company.
GRAND STRATEGY MATRIX
The Grand Strategy Matrix was applied to develop strategies for Starbucks different
business units. Product categories are allotted to four different quadrants according to their
competitive position and market growth. From each quadrant, different strategies can be
chosen:9
1. Quadrant I: product categories with a strong competitive position and rapid market
growth.
2. Quadrant II: product categories with a weak competitive position but rapid market
growth.
3. Quadrant III: product categories with a weak competitive position and slow market
growth.
4. Quadrant IV: product categories with a strong competitive position but slow market
growth.
9
Cf. Maxi-Pedia (2014e): Online publication
13
6. Analysis of Current Situation
The analysis of the current situation is meant to provide a context for any strategic analysis
and should be understood first.10 It provides an insight into the internal composition as well
as the external position of the company. The current situation analysis culminates in distinct
strengths/weaknesses and opportunities/threats which are important key consideration
when compiling the strategic alternatives in the solution analysis.
6.1. Internal Analysis
The internal analysis is meant to provide a review of Starbucks organizational strengths and
weaknesses. By analyzing the internal composition of the company, the reader will gain a
better understanding of the companys background, product categories, basic competencies,
and strategic coordination. The analysis culminates in an Internal Factor Evaluation Matrix
(IFE Matrix) which summarizes and evaluates distinct strengths and weaknesses according to
their importance to Starbucks overall business strategy.
6.1.1.Company Background Analysis
Ownership and Control
Starbucks was founded as a privately-owned company by the companys current CEO Mr.
Schulz in 1971. In 1992, the company went public in order to further improve its financial
position to better tackle and expand into overseas markets. The company is controlled by
Mr. Schulz who serves as the chairman of the board, president, and CEO. The organization is
managerially-controlled because share ownership is widely dispersed. About 75 percent of
shares are held by institutional and mutual fund owners and only three percent is held by
insiders.11
Vision, Mission, and Principles
It is Starbucks mission to inspire and nurture the human spirit; one person, one cup, and
one neighborhood at a time. Starbucks regards human dignity and a warm and comfortable
10
11
Cf. Yahoo Finance (2014): Online publication
14
atmosphere as the highest value to its customers, employees, and partners. The company
allows customers to personalize their beverage according to their needs, for example by
adding milk content, syrup, and even temperature. According to its vision statement and
principles, Starbucks not only calls its employees partners and treats them with respect
and dignity, but it also treats its suppliers ethically, applying fair trade and fair sourcing
principles as well as providing financial support.
Flow of Goods
Purchasing at Starbucks involves company agents who are choosing bean producers
(farmers) predominantly in Africa, Latin America, and Asia. Coffee beans are selected under
the highest standards of quality and the goal is to establish long-term strategic partnerships
with high-performing suppliers. The beans are then exported by export agents, imported by
brokers, tested on quality, roasted, and eventually packaged before they are being sent off
to Starbucks stores around the world. Sales can take three distinct ways: beans are sold
either directly through stores without intermediaries (retailing), to specialty retailers such as
restaurants, or via the internet (direct response). In terms of marketing activities, Starbucks
is relying mostly on word-of-mouth which is facilitated by the high-quality image of the
company. A detailed description of the value chain can be found in appendix 2.
Product Portfolio
Starbucks coffee comes in two forms: one is already processed coffee comprising Starbucks
VIA, K-cup Packs, Verismo System Pods, Pods, Portions, and Filter Packs. The other is by
profile like blonde roast, medium roast, dark roast, flavored roast, and seasonal favorites.
Starbucks' major income source is from selling beverages: it sells hot and iced coffee which
makes up the lions share of sales (75% of total revenues in 2010). Starbucks beverage
portfolio consists of brewed coffees like Seattles Best Coffee and Torrefazione Italia Coffee.
Other product lines are non-coffee blended beverages like Vivano Smoothies, Tazo Tea, and
Ethos Water. Starbucks sells single-serve coffee (VIA instant coffee and K-cups) through
strategic partnerships, and those product lines have also been expanded abroad with
success. Thus, Starbucks channel development segment includes whole bean and ground
coffees, as well as branded products which are sold worldwide through channels such as
grocery stores, warehouse clubs, retailers, and convenient stores. On the other hand, sales
15
of beverages have been decreasing in 2010 as compared to the previous year, which is
mainly due to the addition of various products lines to the existing portfolio. Recently,
Starbucks has added various product lines to its portfolio, which primarily consist of
merchandise items such as home espresso machines, coffee brewers and grinders, coffee
mugs and accessories. Music, packaged goods, books, and gift items are the newest
contribution to Starbucks rapidly expanding product portfolio. Apart from selling beverages
and merchandise, the company also sells various food products that frequently accompany
the coffee experience: sandwiches, baked pastries, salads, oatmeal yogurt, parfaits and fruit
cups. Moreover, in an effort to increase evening sales (people do not tend to drink coffee in
the evening), Starbucks added beverages such as beer and wines as well as evening snacks
like cheese plates and flatbread to the menu in 26 stores in States.12 The detailed product
portfolio can be found in appendix 3.
According to the product portfolio, products can be roughly divided into four major
categories: beverages, foods, packaged and single-serve coffee (whole bean coffee), and
coffee-making equipment and other merchandise. In order to determine which product
categories are the most profitable and fastest-growing ones, the BCG matrix will be applied:
12
Starbucks homepage
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Figure 1: BCG Matrix
Sales growth
Stars Question Marks
Foods
Whole
bean
Profitability coffee
Beverages Merch
andise
Cash Cows Dogs
Source: Own illustration
The BCG matrix shows that the beverage category (including all over-the-counter coffee
products) is the cash cow of Starbucks. In fact, 76 percent of total sales (2010) have been
generated from selling beverages. However, sales of beverages have been declining one
percent from 2008. The rising stars on the horizon are food products which made up 19
percent of total sales in 2010 (2% up from 2008). Successful adaptations of the food offering
(e.g. hot breakfasts and salads) have spurred sales in this category. Packaged coffee products
and single-serve coffees portray a positive growth trend (1% up from 2008), however only
made up about four percent of total sales in 2010. Sales in this category are expected to go
up as Starbucks VIA instant coffee and K-cups are bound to make a successful entry into
emerging markets in 2011. The most underperforming category is coffee-producing
equipment and other merchandise. While total sales accounted for only two percent in
2010, this category is also on the downgrade as sales have been declining two percent from
2008. With the rise of single-serve coffee products, conventional coffee machines have
become rather obsolete and unfashionable.
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Customers
Table 1: Product-Customer Matrix
Products/Customers Kids and Teens Young Adults 25-40 years

Beverages Passiveness Coolness Social Status
Foods Taste Complementary Nutrition
Whole bean and soluble - - Loyalty
coffees
Coffee-making equipment - Fashion, Coolness Loyalty
and
other merchandise
Starbucks is catering its products to three different customer groups: kids and teens, young
adults, and adults (25-40 years). The companys primary market comprises men and women
between 25 and 40 years. They account for almost half (49%) of its total business sales.13
This age group perceives Starbucks as a status symbol. For them, beverages and Starbucks
merchandise is hip and contemporary and perfectly relates with their relatively high income,
professional career, and urban lifestyle. The long-term experience with Starbucks turns this
age group into frequent visitors and loyal customers.
Young adults comprise the age group of 18 to 24 year old customers. About 40 percent of
total sales can be contributed to this group.14 Starbucks positions itself as a place where
college students can hang out, work on their assignments, and meet people. Wi-Fi access,
contemporary store design, and cool music help to retain young adults and eventually turn
them into regular customers. Beverages and food products are perceived as cool and
merchandise as hip and must-have.
Although Starbucks is not catering directly to kids (high calorie and caffeine products), about
two percent of sales can be attributed to customers age 13 to 17. While kids usually
accompany their parents (passiveness), teens use Starbucks as a place to hang out with
friends. They usually order non-caffeine beverages and foods because of how it tastes.
13
Cf. OFarrell, R. (n.d.): Online publication
14
Cf. OFarrell, R. (n.d.): Online publication
18
Acquisitions and Alliances
Since its foundation in 1971, Starbucks has acquired or formed alliances with a number of
companies. The most prominent acquisitions of Starbucks include the purchase of Tazo Tea
Company in 1999, which allowed Starbucks to add various tea products to its portfolio, the
Seattle Coffee Company in 2003, which further expanded Starbucks presence in the US
coffee market and also opened the way into the wholesale sector, and the Coffee Equipment
Company in 2008, which granted Starbucks the right to use the innovative Clover Brewing
System.
Key alliances include the partnership with Target, which allowed Starbucks to sell its coffee
in highly frequented cafs in Target Stores, the Green Mountain Coffee Roasters, providing
Starbucks with access to the fast-growing single-serve coffee market, and Tata Coffee of
India, which will lead to Starbucks gaining a threshold in the aspiring Indian coffee market
and also providing the company with access to high-quality Arabian coffee beans.
Acquisitions and alliance can therefore be seen as important measures to diversify the
product portfolio (e.g. Tazo Tea), gaining market share (e.g. Seattle Coffee Company),
penetrating new segments (e.g. Green Mountain Coffee Roasters), gaining access to
intellectual property (e.g. Coffee Equipment Company), and expanding into new markets
(e.g. Tata).
6.1.2.Internal Characteristics Analysis
Resources, Skills, and Attributes
Starbucks expects its staffs to excel in customer relationship management. Employees are
strongly committed and motivated to share their coffee knowledge, product expertise, and
service with customers. In the recruitment process, the company makes sure that baristas
have the ability to build relationships, work in teams, and portray interpersonal
(communication) skills.15 Next to offering qualified customer service, Starbucks is showing
social, ethical, and environmental stewardship. A detailed description of Starbucks Global
Responsibility Program can be found in the appendix 4. Despite Starbucks active
15
Cf. Starbucks Website (2014a): Online publication
19
participation in environmental programs, the company has been criticized by environmental
experts for pouring millions of gallons of water down the drain at its coffee stores. 16
In addition, Starbucks offers more than 30 different blends of coffee and its single-origin
premium Arabica coffee fulfills the highest standards in premium coffee making. Farmers are
selected according the highest quality standards, and only the best beans are processed into
Starbucks coffee. The Starbucks Roast is a special roasting technique which not only
provides the coffee with a distinct, dark color but also contributes to achieving a unique and
highly recognized flavor.17 Starbucks has further enhanced its brewing skills by acquiring the
Clover Brewing System of the Coffee Equipment Company, and the strategic partnership
with Green Mountain Coffee (maker of the K-cups) has opened the way into the fast-growing
single-serve coffee market.
The companys brand power and recognition are strong, and Starbucks is generally perceived
as a high-quality and trendy coffee store. Nonetheless, one study of Starbucks brand
awareness revealed that people have difficulties connecting the logo (portraying a mermaid)
to coffee and that the actual coffee experience is not as attractive as the spiritual
atmosphere of the stores.18
In recent years, Starbucks has been aggressively extending its product portfolio by adding
different foods, drinks, and merchandise products to the store shelves. Next to the fact that
sales of merchandise and other coffee-making equipment have been declining over the past
years (from 4% in 2008 to 2% in 201019), overloading store shelves with merchandises can
also have a negative effect on brand identity. Especially the sales of food products could
reduce the consumption of coffee, which, after all, is Starbucks cash cow.
Organization
Howard Schulz serves as the chairman of the board, president, and CEO of Starbucks.
Appendix 5 shows the organizational chart of the company. Starbucks overseas markets are
divided into regions (Asia Pacific, Europe, Middle East, North- and South America). However,
regions are not headed by their own regional headquarters but individual stores (whether
16
Cf. Balakrishnan, A. (2008): Online publication
17
Cf. Starbucks Website (2014b): Online publication
18
Cf. Dahlin, P. (2008): p. 47
19
Cf. Starbucks Corporation (2010): p. 4
20
licensed or not) report directly to the international headquarter which oversees all
operations. This centralized control over stores allows Starbucks to implement far-reaching
decisions in a prompt and accurate manner. The downturn of centralized control is that it
might complicate the implementation of regional strategies that are necessary to respond to
local consumer needs. Especially for companies that seek rapid overseas expansion, knowing
the local market and its needs is imperative for establishing a long-lasting presence.
Therefore, Starbucks prefers to penetrate new markets by means of prominent, local
retailers who dispose of in-depth market knowledge and access. Licensees, as the company
claims, provide improved, and at times the only access to desirable retail space.20 Hence, it
comes as no surprise that 63 percent of international stores are licensed, while about 60
percent of US-based stores are company-owned.21 Starbucks maintains a high level of
control over licensed stores by imposing company guidelines such as operating standards,
store development procedures, and training classes for employees. This high level of control
is necessary to preserve the global image of Starbucks and to thwart intellectual property
theft.
The organizational structure within a store is vertically organized. The store manager, who
reports to the district manager, and who is represented by the assistant store manager, is
giving orders to the shift supervisor who is responsible for the baristas. The baristas are the
face of Starbucks as they are in direct contact with customers. Their dedication towards
creating a friendly and carefree atmosphere is very important for the image that Starbucks is
trying to display to customers.
6.1.3.Strategy Analysis
In this section, Starbucks corporate and business level strategy will be scrutinized. Corporate
level strategy concerns the scope of the firm, the general direction the company is heading
towards in the medium- to long-run. The business or competitive strategy concerns how well
the business competes, that is, how the business generates money in the short-run.22
20
21
22
21
Corporate Level Strategy
As the worlds leading coffee company, Starbucks is striving to defend and, if procurable,
expand its current market position against rising competitors. Consequently, Starbucks long-
term strategy is tailored to fending off competitors both at home and abroad and expanding
current market shares. The company has understood that its seemingly unrivaled market
position in the past two decades will no longer be tolerated by competition. Especially
McDonalds and Dunkin Donuts are going great lengths to dethrone Starbucks as the worlds
number one. With this in mind, Starbucks undertakes several long-run strategic actions to
contain competition.
1. Partnership Strategies
Starbucks is a company with tradition and can be seen as a co-initiator of the global coffee
frenzy that started in the late 60s/early 70s (see appendix 6). Despite its history and
excellent capabilities in coffee-making, the company has to revert to external help to further
grow in the market. Alliances with key strategic partners have helped Starbucks to gain
access to new market segments, expand into new overseas markets, and obtain intellectual
property such as the Clover Brewing System. Acquisitions of direct (e.g. Seattles Best Coffee
Company) or indirect competitors (e.g. Tazo Tea or Teavana) helped Starbucks to level the
competitive landscape and diversify its product portfolio. Also in the future, Starbucks is
expected to utilize alliances and acquisitions to spur expansion in emerging markets.
2. Global Market Expansion Strategies
In 1994, two years after the IPO, Starbucks initiated its global expansion program by opening
its first store in Japan. With additional capital backing the expansion strategy, the company
set out to conquer the world in a breathtaking fashion. Within ten years it managed to more
than decuple the number of stores to 8,569 in 2004 (see appendix 7). Most of this growth
was fueled by overseas expansion, which in the beginning was limited to developed
continents such as Europe and Australia. Expansion into developing countries started in the
early 2000s despite slow growth rates resulting from low incomes of potential customer
groups. With the global financial crisis hitting the company hard and sales coming to a still
stand in 2008, Starbucks redirected its attention to emerging markets which came out of the
crisis relatively unscathed. Especially China and India, and to a lesser extend Brazil, have
22
captured the interest of the company. In 2010, Starbucks had locations in 35 Chinese cities
and Mr. Schulz proclaimed that the company plans to double the number of cities soon. In
2011, Starbucks will be opening more than 100 new stores in Brazil, which turns out to be
the second-largest coffee-consuming country in the world.23 According to Mr. Schulz, India
could one day rival China in the consumption of coffee.24 Starbucks alliance with Tata Group
(also owner of Indias biggest coffee chain Eight Oclock Coffee Company) can therefore be
seen as a long-run strategic partnership to secure access to this promising growth market.
Starbucks will also be aggressively expanding its coffee line in its home market, the United
States. Here, the company sees a potential $377 million market for flavored coffee.25 The
long-term strategic objective will be to further consolidate the 75 percent domestic market
share that the company has achieved a far.
3. Product Portfolio Diversification Strategies
In order to increase sales and also to hedge against possible slumps in coffee consumption,
Starbucks has been expanding its product portfolio over the years. Having started as a mere
seller of coffee products in 1971, the company is now catering a wide variety of product
categories to its customers, ranging from foods and teas to coffee-making equipment and
music CDs. The company wants to further diversify its product portfolio to upgrade the
customer experience.26 The success of this product portfolio diversification strategy is
debatable; while sales of food products have been increasing by two percentage points from
2008 to 2010, sales of merchandise and coffee-making equipment have been decreasing by
two percent over the same period.27
4. Market Segment Diversification Strategies
With new products being added to the existing brand portfolio, it is inevitable for Starbucks
to penetrate new market segments. The acquisition of Hear Music allowed the company to
play and sell hip music in its stores. Starbucks also entered the bottled water market by
acquiring Ethos water. While the latter two acquisitions portray two markets that have little
to do with coffee, Starbucks also kept track of hot trends within the coffee market. For
23
24
25
26
27
23
example, the alliance with Keurig allowed the company to deliver K-cups to the fast-growing
single-serve coffee segment. By signing a deal with Courtesy Products, a provider of in-room
coffee service in hotels, Starbucks is further advancing its position in the luxury coffee
segment. This alliance will allow the company to cater its instant coffee to as many as
500,000 luxury hotel rooms in the United States.28 The implementation of market segment
diversification strategy will bring Starbucks closer to becoming a full-fledged chain
restaurant, similar to Burger King, McDonalds, or Subway.
5. Social and Environmental Stewardship
With growing popularity comes growing responsibility. Starbucks has realized this and
consequently launched its Global Responsibility Program which is also part of its long-term
strategy. The ulterior motive behind the Global Responsibility Program is to enhance
Starbucks corporate image as a caring, clean, and sustainable company that goes great
lengths to invest in communities and minimize its environmental footprint. Albeit criticism
concerning the companys handling of waste water, Starbucks strategy seems to be working
out as the company has been frequently awarded for its good corporate responsibility
management.29
6. Brand Modernization Strategy
Starbucks is modernizing its brand in an effort to attract younger customer groups. As it was
mentioned in the Background Analysis (see chapter 6.1.1), young adults make up 40 percent
of sales. In order to turn them into loyal customers, the company must ensure that young
customers (mostly students) feel at home when they enter a Starbucks store. In the era of
internet, offering Wi-Fi is indispensable and Starbucks has realized this as one of the first
companies when it launched its first Wi-Fi stores in as early as 2002.30 The company is also
following other technological trends, such as mobile payment which allows customers to pay
with their smart phones.31 In 2011, Starbucks unveiled a new logo, leaving out the writing
Starbucks Coffee. This revamp gives the company freedom and flexibility to think beyond
coffee without losing its heritage. After all, with more than ten percent of total sales coming
28
29
Cf. Connor, M. (2013): Online publication
30
Cf. Morio, L. (2004): Online publication
31
24
from non-coffee products, a company logo referring to coffee could cause brand confusion
among customers.
7. Centralization Strategy
Last but not least, Starbucks is trying to increase the number of wholly-owned company
stores. As it was mentioned before, Starbucks strategy stipulates the establishment of
licensed stores in new markets in order to better react to local changes in consumer needs.
However, once enough market knowledge has been accumulated, the company would like
to regain full control over its stores. In Switzerland and Austria, Starbucks is currently
negotiating full ownership of its retail operations.32 Full control over retail operations not
only reduces the risk of intellectual property theft (which is particularly prominent in China),
but also increases revenues. Product sales to and royalty and license fee revenues from
licensed stores only account for roughly 10 percent of total net revenues,33 while company-
owned stores generate 84 percent of Starbucks revenues worldwide.34
Business Level Strategy
Without going too much into detail concerning the business strategy of every single region,
this section focuses on describing how Starbucks creates demand and how it gains a
competitive edge over competitors. Here it is useful to describe Starbucks strategic stance
and value chain.35
1. Strategic Stance
When consulting Porters generic strategies, it becomes apparent that Starbucks is driving a
differentiation strategy which is defined as offering a wide range of products (as opposed to
offering low prices) to a broad customer group (as opposed to a narrow customer group).
According to the definition, a company that drives a differentiation strategy seeks to be
unique in its industry along some dimensions that are widely valued by buyers. It selects one
or more attributes that many buyers in an industry perceive as important, and uniquely
positions itself to meet those needs. It is rewarded for its uniqueness with a premium
32
33
34
35
25
price.36 This applies for Starbucks as the company seeks to be unique in its industry by
positioning itself as a premium producer of coffee products. Customers value the high
quality of coffee products, the friendly and cozy atmosphere, and contemporary image of
the company. Based on the latter, Starbucks is able to charge a premium price for its
products.
The company is creating demand by product differentiation. This can best be depicted by
looking at the change in competitive scope. While the company started with a relatively
simple business model, that is as a mere seller of coffee products, it has evolved into a
business model that is more similar to that of a restaurant, offering different types of foods
and drinks. In other words, customers no longer come to Starbucks just for the coffee
experience but also to enjoy pastries, sandwiches, or chill to good music.
Starbucks continuously adds quality (vertical differentiation) to its products and service via
advanced process technology (e.g. Starbucks Roast, Clover Brewing System) and product
technology (e.g. K-cups). The careful selection of high-quality Arabica coffee beans coming
from reputable farmers ensures superiority of the input materials.
As a result, the company is more production-oriented than marketing-oriented. As it was

mentioned before, Starbucks is relying on word-of-mouth instead of spending millions on
conventional marketing activities. This also means that the company is highly process-
oriented, as the process of how the coffee is made is more important than the final product.
In terms of technology, Starbucks is both a leader and follower. For example, the Starbucks
Roast has set new quality standards when it comes to roasting coffee beans. Concerning
single-serve coffee, Starbucks has sold the K-Cups (which were not even invented by
Starbucks) long after Nespresso had launched its Grands Crus.
2. Value Chain Strategy
The value chain describes all functional activities of a company and therefore is responsible
for generating profit or loss. The value chain strategy can be broadly divided into the
production, organizational, and financial strategies. The marketing and retail strategies have
already been discussed in the previous sections.
36
Cf. University of Cambridge (2014): Online publication
26
Starbucks outsources the entire production process to suppliers. From farming to packaging,
Starbucks is not directly involved. Instead, it focuses on forming long-lasting strategic
partnerships with farmers, exporters, brokers, roasters, warehouses, and packaging
manufacturers. Nonetheless, the production process is heavily controlled and supervised by
the companys key account managers. Starbucks has a direct saying in how beans are
selected, roasted, and packaged. This is important to guarantee top quality and maintain a
unique brand image. The outsourcing strategy allows Starbucks to cut costs by delegating
production processes to companies that have a better expertise in each process. It also
allows the company to focus its attention to selling (retailing) its products, which, as it was
mentioned before, is done via wholly-owned and licensed stores, as well as online.
The organizational strategy describes how Starbucks is handling staff decisions. It was
already mentioned that Starbucks is looking for interpersonal skills in potential employees.
The company works to provide satisfying jobs, a positive work environment, appropriate
work schedules, and fair compensation and benefits.37 These activities are part of Starbucks
strategy to deploy human resources in order to gain a competitive advantage. The company
uses the following outlets to advertise openings: the job center on the corporate website,
college campus recruiting, internships, employment websites, newspaper classified ads,
Facebook and twitter, local job fairs, in-store recruiting posters, and informative business
cards. Applicants then go through a series of employment tests and interviews. A typical
assessment center is not applied. Employees receive both off-the-job and on-the-job
training, depending on which position they occupy. Starbucks uses stock options as an
incentive to add value to the company. All employees can earn bean stock, which is the
companys stock-option plan. If the company does well and its stock goes up, employees
make a profit. In fact, Starbucks is quite generous in offering benefits to employees even
part-time workers, which make up two-thirds of the companys workforce, receive social
security and Medicare.38 Therefore it comes as no surprise that Starbucks is constantly listed
in the Financial Times Top 100 Best Companies to Work For.39
In order to comply with its objectives to maintain the number one position in the global
coffee market, Starbucks is aiming to continuously increase profits of both its U.S. and
37
Cf. Flat World Knowledge (2012): Online publication
38
Cf. Flat World Knowledge (2012): Online publication
39
Cf. Fortune (2012): Online publication
27
international businesses. To achieve this, the short-term financial strategy stipulates an
increase in store revenues and a reduction in operating expenses without forfeiting quality
and keeping the selling price of products stable. From the 2010 perspective, Starbucks seems
to have fulfilled its objective as net earnings increased from $391 million in 2009 to $948
million in 2010 (an increase of 142%).40 The majority of this unprecedented increase in
profits can be attributed to the revitalization program that the company launched following
the financial crisis in 2008 and 2009. In an effort to reduce operating expenses and fixed
asset costs, Starbucks closed 600 unprofitable stores in 2009. As a result, operating expenses
fell from $9,993 million in 2008 to $9,436 million in 2010.41 At the same time, the company
was able to increase revenues from $8,772 million to $8,964 million over the same period.42
The increase in sales can be attributed to growing sales figures from overseas markets and
success of single-serve coffee products (K-cups and VIA instant coffee). The financial strategy
also stipulates a decrease in short-term debt to make Starbucks more flexible in undertaking
prompt financial decisions. From 2008 to 2010, the company reduced short-term debt from
$714 million to 0.43
6.1.4.Financial Performance Analysis
The financial performance analysis looks at key financial performance indicators, commonly
referred to as ratios. The most important ratios, namely profitability, liquidity, leverage, and
activity (operational efficiency) are covered to determine the financial health and
sustainability of Starbucks.
Table 2: Ratio Analysis
In millions USD 2010 2009 2008

Growth
Sales $10,707.4 $9,774.6 $10,383.0
Sales growth rate 9.54% -5.86% -
Net income $948.3 $390.8 $315.5
Net income growth 142.66% 23.87% _
40
41
42
43
28
rate
Net earnings-diluted $1.24 $0.52 $0.43
Profitability
Gross profit margin 58.36% 55.36% 55.26%
Operating income
13.26% 5.75% 4.85%
margin
ROA 14.85% 7.01% 5.56%
ROE 25.81% 12.83% 12.67%
Leverage ratio
Debt-to-total-assets-
42.46 45.39 56.09
ratio
Debt-to-Equity-Ratio 0.74 0.83 1.28
Long-term-debt-to
0.13 0.15 0.18
Equity ratio
Times-Interest-Earned
44.95 15.3 9.6
ratio
Equity multiplier 1.74 1.83 2.28
Activity Ratio
Inventory Turnover 8.21 6.50 6.70
Days sales in
44.46 56.15 54.40
inventory
Receivables turnover 35.37 36.07 31.51
Days sales in
10.32 10.12 11.58
receivables
NWC turnover 9.18 8.57 -19.84
Fixed Asset Turnover 4.43 3.85 3.51
Total assets turnover 1.68 1.75 1.83

Liquidity ratio
Current ratio 2.36 2.20 1.78
Quick
2.15 1.94 1.57
ratio
Cash ratio 0.43 0.24 0.08
NWC to total asset
0.58 0.55 0.44
ratio
Source: Starbucks Annual Report 2010
From a financial point of view, Starbucks has become more profitable over the past three
years (2008-2010). Net income went up 143 percent from 2009, and the company shared
29
the profit with shareholders as shown by earnings per share diluted (EPSd) more than
doubling from $0.52 (2009) to $1.24 (2010). In fact, all profitability ratios of 2010 portray a
higher value relative to 2009, emphasizing the companys ability to generate earnings as
compared to its expenses and other relevant costs incurred during the given time period.
Starbucks leverage capabilities have also improved from 2008 to 2010, as the most
important leverage metrics have been declining in the given time period. This means that
Starbucks is able to raise more capital by raising debt (leveraging). It is also a sign that the
company has managed to reduce total liabilities (mainly by paying off debt) and increase
equity (mainly by raising common stock). This indicates that Starbucks prefers to finance
new investments with new capital instead of issuing new debt.
The inventory turnover of Starbucks has been increasing from 6.70 in 2009 to 8.21 in 2010,
indicating that Starbucks was able to increase the number of times inventory is sold or used.
In other words, the company managed to reduce stock by either forecasting sales more
accurately or selling more products. The days sales of inventory (DSI) ratio further supports
the latter, indicating that Starbucks takes less time to turn inventory into sales. Starbucks
Net Working Capital (NWC) turnover ratio increased from -19.84 in 2008 to 9.18 in 2010,
indicating that the company has improved its ability to generate sales compared to the
money it uses to fund the sales. This means that the company was able to increase current
assets (e.g. cash, accounts receivables, inventory) and reduce current liabilities (e.g. short-
term debt, accounts payables). On the bottom line it can be said that Starbucks has
improved its capabilities of converting different accounts on its balance sheet (in this
analysis most assets and liabilities were considered) into cash or sales.
Concerning the liquidity of Starbucks, it can be concluded that all important liquidity ratios
have been increasing from 2008 to 2010, indicating that Starbucks ability to pay off its
short-term debt obligations has improved. Put into other words, the margin of safety to
cover short-term debts is better than in previous years.
6.1.5.Internal Factor Evaluation Matrix
The Internal Factor Evaluation (IFE) Matrix will be utilized to evaluate the major internal
strengths and weaknesses in functional areas of Starbucks.
30
Table 3: IFE Matrix
Key Internal Factors Weight Rating (1-4) Weighted Score

Strengths
Successful and popular product 0.15 4 0.6
lines such as VIA instant coffee,
K-cups, Frappuccino, or Paninis
Access to premium and high- 0.1 4 0.4
quality Arabica beans obtained
through Fair Trade and strong
supplier relationships
Strong supply chain management 0.1 4 0.4
Strong intellectual property 0.05 4 0.2
(Starbucks Roast, Clover
Brewing System)
Healthy financial situation 0.1 3 0.3
(positive ratios)
Highly recognizable brand image 0.1 4 0.4
and comfortable store
atmosphere
Highly motivated, professional 0.05 4 0.2
workforce and good customer
service (Top employer company)
Strong and reputable strategic 0.05 3 0.15
partners (Tata, Target, Green
Mountain, etc.)
Variety of flavors 0.05 3 0.15
Weaknesses
Overextension of product 0.1 1 0.1
portfolio causes brand confusion
and loss of brand identity
High prices increase competitive 0.1 1 0.1
pressure
Environmental issues concerning 0.05 2 0.1
waste water jeopardize brand
image
TOTAL 1.00 3.10
The IFE Matrix has resulted in a final score of 3.10, which scores significantly above 2.5 and
thus indicates a strong internal position.
31
6.2. External Analysis
The external analysis will unravel potential opportunities and threats that exist in the
environment to which Starbucks is exposed. It provides an insight into the global coffee
market and will give the reader an impression on how competitive the industry is. The
analysis culminates in an External Factor Evaluation Matrix (EFE Matrix) which summarizes
and evaluates distinct opportunities and threats according to their importance to Starbucks
6.2.1.Macro-Environmental Analysis
In order to gauge the impact of the macro environment on Starbucks business, the PESTEL
analysis will be utilized. Emphasis will be paid to emerging markets, most particularly China
and India since those two countries are expected to be the growth markets in terms of
coffee consumption in the future.
Political Environment
The political influence on coffee markets is generally not as pronounced as it is with other
markets. Coffee is generally perceived as a beverage that is harmless to the consumers
health and thus is not subject to extensive political debate.
In China, the government is rigorously promoting the establishment of a coffee culture.

Having endured the collapse of the tea bubble in 2008, Chinese tea farmers in the Yunnan
Province (Chinas major coffee production area) switched from growing tea leaves to sowing
coffee seeds.44 The government plans to expand the coffee plantation area in that region to
over one million mu (approx. 66,667 hectares) to capture a market value about RMB 10
billion (US$ 1.61 billion).45 In 2010, Starbucks inked a Memorandum of Understanding
(MOU) agreement with Yunnan Academy of Agricultural Science (YAAS) and Peoples
Government of Puer City to support local farmers in the promotion of responsible coffee-
growing practices and the development of localized coffee. Moreover, the company, with
support of the government, will introduce Starbucks Coffee and Farmer Equity (CAF)
44
Cf. The Economist (2012): Online publication
45
Cf. Barlow, N. (2013): Online publication
32
Practices in China.46 This MOA will provide Starbucks with the opportunity to gain a
permanent foothold in the Chinese coffee market. A possible threat to Starbucks is the
unpredictability of government decisions. Since China is a one-party dictatorship, analysts
warn that a new regime could close the marketplace and even nationalized properties
overnight.47 However, since China has entered the WTO in 2001, foreign investment has
been welcomed with open arms.
India is on the verge of becoming the second biggest country in terms of coffee
consumption. Starbucks arrives to India at a time when the government is trying to attract
more foreign retail investment, but is slow in loosening restrictions.48 Stringent limitations
on foreign ownership have inhibited many international companies from setting up their
branches. Unlike those companies, Starbucks seems to have a less difficult time in gaining a
foothold in the highly profitable Indian coffee market. It can retain 100 percent of ownership
of its outlets with the requirement that a part of its products come from Indian producers
which, essentially, will not be problem since the Arabica coffee beans will be sourced from
Indian farmers anyways.49 The joint venture with conglomerate Tata Group will further help
Starbucks to circumvent possible political bottlenecks.
Economic Environment
The financial crisis of 2008 has left its hefty mark on many, mostly western companies. Also
Starbucks suffered from the global downturn and profit plummeted to an all-time low in
September 2008 ($316 million). Increasing (fixed) costs forced the company to shut-down
600 unprofitable stores (net opening of stores in 2009: -474).50 But also declining revenues
added to the slump in profits; in the U.S., sales went down seven percent from 2008.51
During the crisis years, disposable income of the U.S. stagnated and then fell a few
percentage points until it gained pace again in 2010.52 Price-sensitive customers went from
pricier Starbucks stores to competitors which were able to offer coffee at a lower price.
Surprisingly, revenue growth was mostly positive in emerging markets, in particular in China
46
Cf. New Statesman (2010): Online publication
47
Cf. Khairulyakub (2011): Online publication
48
Cf. Li, Z. (2012): Online publication
49
50
51
52
Cf. Trading Economics (2014a): Online publication
33
and India. This observation goes hand in hand with the fact that the disposable income of
the latter countries continued to rise during crises years.53,54
The economic situation of developed countries can be highly volatile, especially during
crises. The recent financial crisis has shown that emerging markets remain relatively
unscathed by economic turmoil in developed markets. Strong economic growth, political
stability, and rising living standards make emerging markets less prone to crises. For
Starbucks, investing in growth markets such as China and India is important to hedge against
volatile sales in already established, mostly western markets.
Social Environment
The coffee culture experienced an upswing in the early 1960 (see appendix 6). Coffee is
historically produced in Latin America, Central Africa, and South Asia. However, most of its
production was exported to western countries, particularly to the United States where it
became in vogue following the Second World War. Aggressively promoted by the Pan-
American Coffee Bureau in 1952, the coffee break became an inherent part of the
American workplace.55 Nowadays, the coffee culture has shifted from self-made coffee to
single-serve coffee. While coffee has become an established beverage in western societies, it
has only just begun to make an appearance in developing countries, particularly in countries
where it is produced. Especially in Asian countries, which have been known for
predominantly consuming tea, drinking coffee has become a social status.
In India, it became cool to drink coffee due to the influence of western cultures and
fashionable international brands, such as Starbucks. Moreover, coffee houses have become
an alternative sanctuary and social hangout or Indias youth in a culture that has generally
shun bar-going, particularly for young women.56 Growing disposable income, urbanization,
and coffee drinking becoming a fashion have spurred the expansion of the domestic coffee
market in India. The customer base generally comprises young age groups (15 30 years
old), and the company who is able to offer good coffee at an affordable price will have a
competitive edge over competitors.
53
Cf. Trading Economics (2014b): Online publication
54
Cf. Trading Economics (2014c): Online publication
55
Cf. Pendergrast, M. (2001): p. 85
56
34
Also in China, the coffee culture has just recently experienced an upsurge. While coffee was
disdained as a capitalist product under Mao, it reemerged on the streets of Shanghai in the
late 1980s.57 Although coffee is produced in the rural regions of Yunnan, consumption
primarily rests on the developing demand among eastern Chinas growing urban middle
class. However, China does not have the kind of pervasive coffee culture that is found in
many parts of the West. While young urbanites patronize cafes as an outward sign of their
engagement with global trends (status symbol), their coffee-drinking is less a habit and more
about seeking a certain kind of experience.58
Technological Environment
The technological environment surrounding coffee consumption has changed over the years.
While typical coffee was originally grounded at roasteries, in grocery stores, or at home
using burr grinder, blade grinder, or mortars, and then brewed by means of coffee
percolators or automatic coffeemakers, nowadays instant coffee and single-serve coffee,
which is served in small capsules (or pods), is usually brewed in special machines at home.
Coffee capsules and instant coffee packs have revolutionized the technological landscape of
coffee making equipment. In the old days, coffee making was a rather time-consuming and
arduous task which required skill, practice, and the right equipment. Nowadays, people can
get a good cup of coffee by simply pouring instant coffee into a cup of boiled water, or by
putting a capsule into a machine. In todays fast-moving world, this easy and uncomplicated
way of making coffee has become the norm. Making coffee the old-fashioned way has
become more of a trend among true coffee connoisseurs.
This change in technological environment has promoted Starbucks to move into the single-
serve coffee market by introducing the VIA instant coffee and K-cup lines. The first-mover
advantage, however, was reserved for Nestl which introduced its Nespresso line in the
early 2000s. Nonetheless, the fast-growing instant coffee market, which displays annual
growth rates of seven to ten percent, is certainly big enough to host a number of players.59
57
Cf. Cunningham, E. (2010): Online publication
58
Cf. Cunningham, E. (2010): Online publication
59
Cf. Global Coffee Report (2013): Online publication
35
Environmental Environment
Environmental stewardship has become a priority for coffee makers, and producing green
and fair coffee is an important attribute for improving the brand image among consumers
and environmentalists. The production of coffee has a distinct impact on forests,
biodiversity, and water usage and companies like Starbucks actively try to reduce their
environmental footprint. Another big question is whether the profits of big coffee chains are
trickling down to the people who actually grow the beans. Traditionally, complexities within
the supply chain have meant that the 100 million people growing coffee around the world
have been excluded from the huge profit making potential of coffee. On average, third world
coffee farmers receive a paltry of ten percent of the eventual retail price.60 Along with the
negative effect this has on the living conditions of farmers, the drive for increased output
has had a knock-on effect on the environment as well, with monocropping and sun grown
coffee now being the norm.61 It must also be taken into consideration that most coffee
growing regions are home to delicate ecosystems, which increases the potential for serious
damage. Governments around the world have been urging coffee producers to adopt fair
trade and environmentally-friendly practices. However, the implementation and execution
of fair trade norms is not practiced thoroughly by governments, particularly in developing
countries. Fortunately, companies have taken the implementation of such norms into their
own hands and established their own responsibility guidelines. Starbucks, for example,
carries out ethical sourcing practices and drives an environmental responsibility program to
support local farmers and protect the environment.
Legal Environment
It is essential to understand the intellectual property right laws and licensing issues when
entering emerging market. For Starbucks it is important to make use of intellectual property
protection laws because the technology which the company uses (e.g. Starbucks Roast) is
an essential component of the companys competitive advantage.
Especially in China, western companies have frequently experienced infringements on their

intellectual property rights. Intellectual property which has not been thoroughly protected
60
Cf. Blacksell, G. (2011): Online publication
61
Cf. Blacksell, G. (2011): Online publication
36
has often been copied by direct, mostly local competitors. Upon first entering the Chinese
market in 1999, Starbucks has managed to secure all of its major trademarks within four
years.62 Some local companies have overstepped legal boundaries in their effort to mimic
Starbucks popular and successful branding strategy, and have consequently been sued by
Starbucks with success.
Just like in China, Indias intellectual property legislation covers every significant aspect of
the protection of intellectual property if the property is registered in a prompt and proper
manner.63 Potential shortcomings of the IP legislation in India are bureaucratic delay in the
enforcement of IP laws, backlog of cases at both the civil and criminal courts, and lack of
transparency, particularly at local level. Also the large number of small players infringing on
IP rights puts a financial burden on the government, which can result in court cases being
dropped without clear reasons.64
6.2.2.Industry Analysis
The attractiveness of the global coffee industry will be analyzed by means of applying
Porters Five Forces.
Figure 2: Porters Five Forces
Threat of
Established Rivals
5
4
3
Bargaining Power of 2 Threat of New
Suppliers 1 Entrants
0
Threat of Bargaining Power of

Substitutes Buyers
62
Cf. DeVault, G. (n.d.): Online publication
63
Cf. Intellectual Property Office (2013): p.7
64
Cf. Intellectual Property Office (2013): p.7
37
The spider diagram depicted above shows the competitive rivalry in the global coffee
industry. The forces that exceed a score of three can be defined as potential threats that
need to be considered by Starbucks.
Threat of Established Rivals (HIGH)
The rivalry among exiting competitors is high. Starbucks is competing against major
competitors such as McDonalds, Dunkin Donuts, Costa, or Caribou Coffee. In addition to
that, the company has to compete with countless smaller coffee shops and cafes. The
competitive advantage that competitors have over Starbucks is that they offer their (coffee)
products at a cheaper price. In appendix 8, a price comparison on the basis of two popular
beverages (hot black coffee and iced mocha) between Starbucks, Dunkin Donuts, and
McDonalds can be found. Despite the fact that only two products have been compared, it
becomes obvious that Starbucks is the pricier stores of the three. The coffee war is
particularly acute in emerging markets. While Starbucks targets the upper income level
Chinese with beverages costing up to RMB30 (about US$5), Nestls Nescaf instant coffee,
for example, can cost as little as RMB1.5 (about US$0.10) per package.65 Other competitors,
such as McDonalds and Dunkin Donuts, pursue similar pricing strategies with which not so
much the high income segments are targeted but rather the rising middle income class
(urbanites). Competitors are also aggressively expanding their presence in emerging market.
British coffee chain Costa Coffee entered China in 2006 and currently has over 250 stores
with the objective to increase the number to 500 stores by 2016 accounting for 8.9 percent
market share of the coffee retail market.66 McDonalds can currently boast of 1,500 outlets in
China. Small competitors such as Taiwanese 85 Degrees and Hong Kong-based Pacific Coffee
are also planning on making a market entry into China soon.67 Starbucks current market
share of 66 percent of the total coffee retail sector in China is therefore crumbling.
Threat of New Entrants (LOW)
The threat of new entrants to the industry to compete with Starbucks is low because the
coffee market is highly saturated with established players. Moreover, a substantial amount
of financial resources associated with buildings and properties are required in order to enter
65
66
67
38
the industry.68 In developing markets, the threat of new entrant is marginally higher because
fast market growth and poor execution of intellectual property rights allow small coffee
startups to gain a foothold in the market.
Bargaining Power of Buyers (HIGH)
The bargaining power of customer is high because there are no or relatively small switching
costs for customers. Monetary switching costs, such as transportation and the actual cost of
coffee are low because customer can essentially buy a coffee at every gas station or
supermarket. In fact, customers can switch to competitors with ease and Starbucks must be
careful to not lose customers to cheaper competitors. On the other hand, non-monetary, or
emotional switching costs are high because other brands might not meet customer
expectations.
Threat of Substitutes (MEDIUM)
The threat of substitute products is medium. Typical substitute products for coffee are tea,
juices, soft drinks, water and energy drinks. Pubs and bars can be seen as alternative
locations to meet people and spend time outside of university or work. Nonetheless, the
Starbucks atmosphere is unique and hard to replicate by bars and pubs.
Bargaining Power of Suppliers (HIGH)
The bargaining power of supplier is high. The law of supply and demand states that when
demand exceeds supply, producers are able to offer higher prices. This is the case with
todays coffee market. The demand for coffee is high and the supply limited because coffee
can only be produced in certain geographical areas. Moreover, fair trade laws have obliged
coffee companies to pay farmers adequate prices for their outputs. All this increases the
bargaining power of suppliers.
6.2.3.External Factor Evaluation Matrix
The External Factor Evaluation (EFE) Matrix will be utilized to evaluate the major external
opportunities and threats in the global coffee market.
68
Cf. Dudovskiy, J. (2014): Online publication
39
Table 4: External Factor Evaluation Matrix
Key External Factors Weight Rating (1-4) Weighted Score

Opportunities
Expansion to emerging markets, 0.2 4 0.8
in particular to China, India, and
Brazil
High growth potential of single- 0.1 3 0.3
serve (instant) coffee market
both in the U.S. and abroad
High potential for flavored coffee 0.05 2 0.1
in the US market ($US 377
million)
High potential for courtesy coffee 0.05 2 0.1
products
Threats
High bargaining power of 0.15 4 0.6
suppliers raises prices of coffee
beans
Trademark infringements, 0.1 3 0.3
particularly in emerging markets
Increased competition from local 0.15 1 0.15
coffee companies and
international entrants in
emerging markets
Saturated markets in developed 0.05 2 0.1
economies
Increasing price sensitivity of 0.1 1 0.1
Starbucks customers
Negative publicity because of 0.05 3 0.15
water treatment
Total 1.00 2.7
The EFE Matrix has resulted in a final score of 2.7, which scores slightly above the average
score of 2.5 meaning that with its current strategic orientation Starbucks is only marginally
able to respond to external factors.
40
7. Assessment Analysis (Fulcrum)
On the basis of the current situation analysis, it will be determined whether Starbucks
current strategy is appropriate and sustainable for the future. The question is: what will
happen if the existing strategy (see chapter 6.1.3) continuous?
7.1. Current Performance Assessment
The current performance assessment summarizes the current situation analysis of the
previous chapter and determines whether Starbucks has a problem, and if so, what is the
nature of the real problem? This can be done by posing four meaningful questions that will
lead to accurate and perspective answers.
Is the global coffee industry attractive for Starbucks?
The attractiveness of the global coffee industry can be seen as relatively high. Positive
market growth in emerging markets requires Starbucks to shift the strategic focus away from
saturated markets in developed economies (mostly the U.S. and Europe) to ascending
economies such as China, India, and Brazil. The market presence (number of stores) must be
increased incessantly in order to protect market share not only against international
competitors which swarm emerging markets at a rapid pace, but also against local coffee
companies which have the home field- and price advantage. In developed countries, niche
segments, such as the flavored coffee and courtesy coffee segments, deserve more
attention, as well as hot coffee trends, such as single-serve coffee. Market attractiveness is
moderated by high bargaining power of buyers and sellers.
What are key success factors in the global coffee market and does Starbucks have
them?
Key success factors are a combination of important facts that are required in order to
accomplish one or more desirable business goals.69 For Starbucks, key success factors are
based on its numerous capabilities which distinguish the company from competitors. Three
particular capabilities can be highlighted to have the biggest impact on Starbucks market
success.
69
Cf. Business Dictionary (2014): Online publication
41
1. Market leadership
Starbucks is occupying the market leadership position in many developed and emerging
markets. For example, the company can boast of market share of 75 percent in the U.S.
market.70 In China, Starbucks holds a market share of nearly 70 percent.71 Being the leader
of the market allows Starbucks to set industry trends which the company has done in the
past with beverages like the Frappuccino.72 In other words, the higher the market share the
higher the control over competitors and influence on customers.
2. Superior store locations
Starbucks is able to locate their stores in areas with much higher foot traffic and better local
demographic compositions, such as in close proximity to places of interests or landmarks.
Through this, Starbucks is able to attract more customers and also improve its quality image.
In addition to that, the store atmosphere enjoys a unique perception among customers.
3. Supply chain management
One of Starbucks strongest key success factors is its own supply chain operations. In a time
where coffee prices are rising and ethical sourcing practices becoming the norm, the
company has managed to form long-lasting and mutually-beneficial partnerships with
farmers around the world. Starbucks transportation rates are the best in the industry, and
the ability to protect the integrity of their coffee beans from detrimental effects of oxygen
and time through a closed loop system of packaging is unprecedented in the industry.73
Key success factors are continuously nurtured by and guided by Starbucks six principles,
which, in short, leverage customer loyalty, premium quality coffee, and homey atmosphere
of its stores to fend off competitors.
Does the strategy fit the environment, or is incongruent?
Starbucks current strategy orientation has been highlighted at great length in chapter 6.1.3.
The EFE matrix has shown that the company is only marginally able to respond to external
factors. This means that with its current strategic orientation, Starbucks is able to sufficiently
70
71
Cf. Burkitt, L. (2010): Online publication
72
Cf. The Jeebboo Gazette (2012): Online publication
73
Cf. The Jeebboo Gazette (2012): Online publication
42
cover most of the external factors but not all of them. In other words, Starbucks current
strategy is appropriate, nonetheless it requires fine-tuning to be sustainable in the short- to
medium-run.
Does Starbucks have a competitive advantage?
The key success factors of Starbucks have been briefly discussed in the penultimate
paragraph. In order to determine the competitive advantages of Starbucks, one must
combine the key success factors with the companys strengths and see if some of the
strengths really help a key success factor stand out from competitors.
Starbucks successful and popular product lines (e.g. VIA instant coffee, Frappuccino) and
highly recognizable brand have helped the company to conquer market share in established
and emerging markets. The company continuous to attract customers by further
differentiating its product portfolio (e.g. beer will attract beer drinkers) and expanding into
niche markets (e.g. courtesy coffee products for luxury hotels). Those strengths help
Starbucks to maintain its current market leader position.
The highly recognizable and popular brand image as well as strong financial muscle helps
Starbucks to locate stores at highly-frequented and exclusive shopping sites in major cities
around the world. Being perceived as a luxury coffee house, Starbucks stores fit perfectly
between stores like Versace and Gucci. Moreover, Starbucks has the necessary financial
means to rent store room in those areas. While direct competitors, such as McDonalds and
Dunkin Donuts, also have the necessary financial means, they are not perceived as luxury
coffee companies but rather as fast-food chains. Starbucks therefore has a competitive
advantage in selling coffee to high-end customers in high-end places.
Unlike other competitors, Starbucks maintains an effective and efficient relationship with
coffee bean suppliers by implementing fair trade and ethical sourcing principles. This
reduces the bargaining power of suppliers substantially and can have a positive influence on
the price development of coffee beans. Other competitors have to deal with rising resource
prices which have a negative impact on their margins.
43
Hence, it can be said that Starbucks is able to utilize its strengths to turn key success factors
into comparative advantages. This is also why Starbucks has been testified with a rather
strong internal position (see IFE Matrix).
7.2. Expected Performance Assessment
This assessment summarizes expected performance in the future if the current strategy is
maintained. Based on the current situation analysis, a most-likely-scenario for the industry
will be developed to determine which changes will take place to the external environment.
The main question is: will Starbucks current strategy be sustainable if the industry develops
a certain way? When trying to build a scenario, four key drivers usually play an important
role in determining the future attractiveness of the industry: change in long-term industry
growth rate, change in product and marketing innovation, change in competitive intensity,
and change in consumer needs.74
Change in long-term industry growth rate
The average annual growth rate of the global coffee market accounts for about two to three
percent.75 This rate is not likely to change in the short-run as stagnating growth rates in
developed countries balance out increasing growth rates in emerging countries. In the
medium-run, however, growth rates are expected to pick up as increasing coffee
consumption in highly populous markets such as China, India, and Brazil outpaces
consumption in developed countries. It is therefore interesting to look at the market
development in emerging economies:
In China, coffee consumption level is increasing at a rate of 25 to 30 percent (ten times more
than the average world rate).76 The rising middle class with higher incomes can be
considered the major growth engine. In India, annual growth in consumption accounts for
five to six percent.77 Just like in China, a rising middle class with increasing disposable income
is driving the growth. Comparable to India, coffee consumption in Brazil is increasing at an
74
Cf. Huntley, F. (n.d.): Online publication
75
Cf. Brown, N. (2012): Online publication
76
Cf. Hong, D. (2013): Online publication
77
Cf. Kulkarni, M. (2013): Online publication
44
annual rate of approximately five percent.78 Economic stability and higher wages have led to
an expanding middle-class which accounted for 42 percent in total coffee consumption in
2009.79 A study of Rabobank has shown that by 2020, emerging markets will account for 50
percent of global coffee consumption.80
Equally important are growth rates in certain market segments. The shift from multi-serve
coffee to single-serve coffee is going to accelerate in the future. The at-home and out-of-
home coffee consumption will be changed by single-serve systems, such as Starbucks
Verismo and Keurig Brewers. Currently, sales of single-serve coffee account for only eight
percent of total coffee sales, but saw an increase of 31.3 percent from the previous year
indicating strong growth figures for the future.81 Single-serve coffee is predominantly sold in
developed countries, where it can be seen as a new and efficient alternative to making
coffee the old-fashioned way. However, also in emerging markets, single-serve coffee
products are increasingly gaining attractiveness among customers.
Starbucks will be able to quench increasing coffee demand in the future because of its
comparative advantage in sourcing coffee beans from loyal and high-quality bean producers
as well as by key strategic partnerships with local coffee retailers that help Starbucks to
distribute its products globally.
Change in Product and Marketing Innovation
Innovation is expected to drive market share gains and gross profits. Consumer preference
for convenience and quality will drive innovation in single-serve brewing technology.82
Moreover, it will be important to further extend the product portfolio by adding new
products (categories) to quench emerging customer needs. As a consequence, traditional
coffee companies that started out as mere coffee stores are going to transform into full-
scale restaurants over time.
Equally important is the role of service innovation. With access to high-quality Arabica coffee
beans widening, the quality gap between competitors is closing. Sometimes, the service
78
Cf. Bartender (2013): Online publication
79
Cf. Bartender (2013): Online publication
80
Cf. Rabobank (2013): slide 7
81
Cf. Geller, M., Dalal, M. (2012): Online publication
82
45
offering is the only possible way to gain a competitive edge over market contenders. In the
future, the coffee store is no longer going to be a place where one buys a cup of coffee or
sandwich, but a sanctuary where people can go to escape the daily grind, meet friends, or
simply enjoy a good reading. Coffee stores are therefore going to turn into places where
people actually feel at home. As result, many coffee companies offer cozy and comfortable
sitting areas, Wi-Fi access, and music.
With competition in the global coffee market increasing, it will be ever more difficult to
attract customer or tap into new customer groups. Spending on marketing activities is
therefore expected to grow. Companies that have previously relied on the power of their
brand image must be careful to not underinvest in marketing activities.
Starbucks strong intellectual property and extensive R&D activities will help the company to
keep up with product innovation in the future. Its service capabilities are unrivaled beyond
any doubt. Starbucks has Wi-Fi connections in all of its stores and strives to improve the
purchasing procedure by providing mobile payment. Only in terms marketing activities there
is room for improvement.
Change in Competitive Intensity
As it was mentioned before, the competitive intensity is bound to increase especially in

emerging markets. Starbuck, who is enjoying leadership positions in the majority of its
markets, is not sufficiently prepared to counteract new entrants both from the domestic and
international field. The reason for this is the premium price it charges for its coffee products.
Despite the increase in disposable income, only high-end customers will be able to afford
Starbucks products (see price comparison in appendix 8) on a sustainable basis, meaning
that customer will come back frequently to repurchase products. However, in emerging
markets it is the middle-class that is responsible for increasing coffee consumption.
Competitors like McDonalds and Dunkin Donuts are better positioned to respond to the
price expectations of this customer segment.
In terms of niche competition, Starbucks must be careful to not miss out on upcoming
trends. The company has underestimated the profit potential of single-serve coffee and has
only recently joined the market when most of the cake was already divided among other
46
competitors. For example, in China, Nestl capitalized on its first mover advantage and now
dominates the market for single-serve coffee.83
Change in Consumer Needs
Consumer needs change over time and companies must be keen to tailor their product
offerings to emerging needs. One conspicuous change in consumer needs has happened in
the past decade and will carry on well into the next; the need for fast coffee. With time
being of essence, consumers are in need of coffee that is ready to serve within seconds. This
particular need has promoted the emergence of instant coffees and single-serve coffees.
Another change in consumer needs is the rising emphasis on fair trade. With the rise of the
internet, consumers have the chance to carefully follow social responsibility practices of
companies online, and rumors and scandals, such as the waste water scandal of Starbucks,
gain publicity a lot faster. According to the market study of Rabobank, the premiumization
of the coffee market is another ascending consumer trend. Especially in developed markets,
customers are willing to pay extra money for premium coffee and premium offerings
supported by fair trade, health benefits, and organic and origin.84 In developing countries,
consumers demand coffee at a reasonable price and with a western image.
Starbucks current strategic orientation is able to capture most consumer trends that are
expected to make an impact on the coffee market in the future. However, the company
seems to have problems foreseeing emerging trends.
7.3. Developing Strategic Focus
In order to develop strategic focus, it is important to first summarize the strengths and
weaknesses of Starbucks and the opportunities and threats the company is exposed to. This
will be done by means of applying a simple SWOT analysis:
83
Cf. Doherty, D. (2012): Online publication
84
47
Table 5: SWOT Analysis
Strengths Opportunities
1. Successful and popular products lines 1. High growth rates in emerging markets
2. Access to high-quality Arabica coffee (China, India, Brazil)
beans 2. High growth potential of the single-serve
3. Strong supply chain management coffee market
4. Strong intellectual property and R&D 3. High growth potential for flavored coffee
capabilities in the U.S.
5. Strong financial muscle 4. High growth potential for courtesy coffee
6. Strong brand image products
7. Strong customer service
8. Strong and reputable partners
9. Variety of flavors
Weaknesses Threats
1. Overextension of product portfolio 1. High bargaining power of suppliers
2. High prices of products 2. Trademark infringements in emerging
3. Environmental issues markets
3. Increasing competition from local
competitors and new entrants in
emerging markets
4. Saturated market in developed
economies
5. Increasing price sensitivity of customers
Based on the SWOT analysis, a TOWS analysis can be compiled to provide the necessary
strategic focus.
48
Table 6: TOWS Analysis
Opportunities (O) Threats (T)

SO ST
Maxi-Maxi Strategy Maxi-Mini Strategy
1. Utilize financial power and brand 1. Utilize strong supply chain/supplier

image to spur expansion in emerging relationship management to reduce
markets (S5,6; O1) bargaining power of supplier (S3, T1)
2. Utilize strong intellectual properties 2. Focus on quality, customer service,
Strengths (S)
and strategic partnerships to tap brand reputation, and key strategic

into/further expand in the single- partners to counter low-price offering
serve coffee market (S4.8; O2) of competitors (S2,6,7,8; T3)
3. Utilize the wide variety of flavors and 3. Utilize strong intellectual property and
successful product lines to penetrate R&D capabilities to penetrate niche
the flavored coffee market in the U.S. segments in saturated developed
(S1,9; O3) markets (S4; T4)
4. Utilize high quality, brand image, and
customer service to penetrate the
courtesy coffee market in the U.S.
(S2,6,7; O4)
WO WT
Mini-Maxi Strategy Mini-Mini Strategy
1. Redirect focus to profitable niche 1. Discard unprofitable product lines to
Weaknesses (W)
markets to avoid overextension of avoid portfolio overextension and

portfolio in unprofitable market foster profitable product lines to
segments (W1; O2,3,4) exploit niche market (W1; T4)
2. Tackle middle-class customer in 2. Lower prices in reaction to increasing
emerging market by adjusting prices price sensitivity of customers (W2; T5)
to affordable levels (W2; O1)
The TOWS analysis has highlighted four, broad strategic directions from which possible
strategic alternatives can be drawn.
49
8. Solution Analysis
The objective of the solution analysis is to come up with a final strategy (or strategies) for
Starbucks to help it improve its competitive position in the short- to medium-term. Three
steps a necessary to achieve this: generate strategic alternatives, determine the goals and
evaluation criteria, select the final strategy or strategies.
8.1. Strategic Alternatives
The strategic alternatives are taken from the TOWS analysis which has been compiled in the
previous chapter.
1. SO Alternative
The SO alternative is the most aggressive strategy, as it utilizes internal strengths to

capitalize on opportunities. The main objective of this alternative is to aggressively expand
operations in emerging markets by flexing the financial muscle and utilizing brand
superiority as well as key strategic partnerships to gain a permanent and preferably
unrivaled foothold in the market (market leadership). In developed, already saturated
markets, the alternative envisages a strong focus on niche segments such as the single-serve
coffee segment. Technologies that are necessary to succeed in niche segments must be
either developed by using own R&D capabilities or acquired from competitors. Furthermore,
it is important to promote the high-quality and one-of-a-kind image of the Starbucks brand,
meaning that prices should not be lowered but kept stable to not deteriorate the brand
image.
2. ST Alternative
The ST alternative takes a more conservative stance as it utilizes strengths to minimize

threats. In other words, it suggests the retention of the status quo. Current market share
must be defended by foreseeing threats and eliminating them before they become an issue.
The preeminent threat of rising coffee bean prices must be constrained by nurturing good
relationships with supplier, focusing on fair trade and ethical sourcing practices. Similar to
the SO alternative, the ST alternative also suggest to counter the low-price strategy of
competitors by sticking to the high-quality and exclusive brand image. Good customer
50
service and a unique and state-of-art store atmosphere should be sufficient to justify the
extra price customer pay for Starbucks products.
3. WO Alternative
The WO alternative denies Starbucks current strategic approach and suggests a turnabout in
the pricing strategy. In response to the rising middle-class in emerging markets, the product
prices must be adjusted according to the customers budget. This does not mean
undercutting the prices of competitors, but it will no longer allow Starbucks to charge a
premium price for its products. Also, niche segments should be tackled in a more precise and
slim-cut manner, meaning that certain product categories should be discarded (e.g.
merchandise) to free up financial resources that are necessary to boost expansion in key
segments, such as the flavored coffee market or the courtesy coffee market.
4. WT Alternative
The WT alternative is the most defensive strategy, as it suggests getting on the same level
with competitors. On the one hand, this alternative would allow Starbucks to enter the
highly profitable and fast growing middle-class segment in emerging markets. On the other
hand, the company would be exposed to a severe price war and loose its high-quality brand
image among customers. Similar to the WO alternative, the WT alternative stipulates that all
unprofitable product categories (dogs) should be discarded and that emphasis should be put
on highly profitable and fast-growing products (stars).
8.2. Goals and Evaluation Criteria
In this section, the goals of Starbucks are highlighted. In order to select the right strategy for
the company, it is important to know what the company wants to achieve in the future.
Goals are then translated into specific performance criteria which take the form of
objectives. Those short- to medium-term objectives should be specific, measurable,
achievable, realistic, and time-bound (SMART principle).
51
Table 7: Starbucks Goals and Objectives
Goals Objectives
Expand market position in the China-Asia- Open 1,500 stores in China until 2015
Pacific (CAP) market (in particular India, Double the number of cities until 201585
Japan, and Korea) Acquire full ownership of all stores in
China from joint venture partner Maxims
Build China as a second home market Caterers Limited to expand control in
outside the United States central, southern, and western China86
Expand number of stores in Japan to
1,000 by 201387
Expand number of stores in Korea to 500
by 201388
Complete the joint venture with Tata
Group in 2011 to increase market
presence in India89
Expand market leader position in the Open 3,000 stores until 201590
Americas Acquire Peets Coffee and Tea
Incorporated in 2011 to consolidate and
grow market share91
Further increase presence in Brazil by
opening 100 stores in 201192
Develop current position in the fast-growing Enter into expanded, long-term strategic
single-serve coffee market partnership with Green Mountain Coffee
to increase sales of K-Cup packs and
Keurig Brewers93
Become the first coffee company to offer Launch mobile payment system for
mobile payment BlackBerry and iPhone in all U.S.-based
stores in 201194
Improve and develop ethical sourcing Extension of line of credit for farmers to
practices $20 million by 201595
Purchase of coffee which is 100%
sourced according to the ethical criteria
of C.A.F.E by 201396
Enter the courtesy coffee market in the Establish partnership with in-room
United States market leader Courtsey Products in 2011
85
Cf. Vanderborg, C. (2013): Online publication
86
Cf. Zhihao, T. (2011): Online publication
87
Cf. Chowdhury, S. (2012): Online publication
88
89
Cf. Canterbee, J. (2011): Online publication
90
Cf. Vanderborg, C. (2013): Online publication
91
92
93
Cf. The Motley Fool (2013): Online publication
94
Cf. Hardy, E. (2011): Online publication
95
96
52
to gain access to 500,000 luxury and
premium hotel rooms in the United
States97
Increase the number of wholly-owned Acquire full ownership of stores in
company stores Switzerland and Austria in 201198
Acquire full ownership of stores in
mainland China by buying stores from
Maxims caterer99
Improve and accelerate supply chain Build 100,000 distribution centers in 20
activities countries by 2015100
Improve customer loyalty Introduce My Starbucks Rewards by
2013101
Improve and develop current position in the Acquire Atlanta-based tea store chain
tea market Teavana Holding Incorporated in 2012 to
expand in the $40 million global tea
market and claim a leading position102
Extend product portfolio, especially the food By the end of 2013, Starbucks customer
and beverage lines in the U.S. will be able to enjoy La
Boulange products and Evolution Fresh
juices in company-operated stores103
8.3. Strategy Selection
The selection of the most suitable strategy (or strategies) for Starbucks is based on the
evaluation of the alternatives while taking into consideration the goals and objectives of the
company. As in the strategy analysis, there will be a distinction between corporate level and
business (competitive) level strategies.
Corporate Level Strategies
The SPACE matrix will be utilized to determine which nature of corporate strategy Starbucks
should undertake. The dimensions and evaluation of the SPACE matrix can be found in
appendix 9.
97
Cf. Courtesy Products (2011): Online publication
98
Cf. Starbucks Website (2011): Online publication
99
Cf. China (2011): Online publication
100
101
102
103
53
Figure 3: SPACE Matrix
The SPACE matrix shows that Starbucks should drive an aggressive strategy for the short- to
medium-term. As a result, the WO and WT alternatives can be eliminated as they take on an
extremely defensive/conservative stance by trying to emulate low pricing strategies of
competitors. The question remains as to whether Starbucks should expand or simply
maintain current market shares (SO versus ST). In order to determine which strategic
alternative is the most suitable one for Starbucks, the QSPM Matrix will be applied.
54
Table 8: QSPM Matrix
Alternative 1 (SO) Alternative 2 (ST)

Expand Market Share Maintain Market Share
Total Total
Attract Attractiveness Attractiveness Attractiveness
Key Factors Weight Score Score Weight Score Score
Strengths
Successful and popular product lines 0,15 4 0,6 0,15 2 0,3
Access to high-quality Arabica coffee
beans 0,1 4 0,4 0,1 2 0,2
Strong supply chain management 0,1 4 0,4 0,1 3 0,3
Strong intellectual property and R&D
capabilities 0,05 4 0,2 0,05 4 0,2
Strong financial muscle 0,1 4 0,4 0,1 2 0,2
Strong brand image 0,1 3 0,3 0,1 3 0,3
Reputable customer service 0,05 3 0,15 0,05 2 0,1
Strong and reputable partners 0,05 4 0,2 0,05 1 0,05
Variety of flavors 0,05 0 0 0,05 0 0
Weaknesses
Overextension of product portfolio 0,1 0 0 0,1 4 0,4
High prices of products 0,1 4 0,4 0,1 4 0,4
Environmental issues 0,05 1 0,05 0,05 3 0,15
Sum Weights 1 1
Opportunities
High growth rates in emerging markets 0,2 4 0,8 0,2 1 0,2
High growth potential of single-serve
coffee market 0,1 4 0,4 0,1 2 0,2
High growth potential for flavored
coffee in the U.S. 0,05 4 0,2 0,05 2 0,1
High growth potential for courtesy
coffee products 0,05 4 0,2 0,05 2 0,1
Threats
High bargaining power of suppliers 0,15 3 0,45 0,15 4 0,6
Trademark infringements in emerging
markets 0,1 4 0,4 0,1 4 0,4
Increasing competition from local
competitors and new entrants in
emerging markets 0,15 4 0,6 0,15 4 0,6
Saturated market in developed
economies 0,1 3 0,3 0,1 4 0,4
Increasing price sensitivity of customers 0,1 3 0,3 0,1 4 0,4
Sum Weights 1 1
Sum Total Attractiveness Score 6,75 > 5,6
The QSPM Matrix clearly shows that Starbucks should drive an aggressive expansion strategy
both in domestic and foreign markets. Maintaining current market shares and trying to
foresee and then dodge attacks from competitors is not an option.
55
Business Level Strategies
In contrast to corporate level strategies, which concern the scope of the firm, business level
strategies deal with product categories and their profit-making potential. The BCG matrix
(see chapter 6.1.1) has already highlighted the profitability of Starbucks four major product
categories. The Grand Strategy Matrix will be applied to determine which product strategies
are most appropriate for each category on the basis of competitive position and market
growth.
Figure 4: Grand Strategy Matrix
Rapid
Market
Growth
Quadrant II Quadrant I
Market development Market development

Market penetration Market penetration
Product development Product development
Horizontal integration Integration (any direction)
Divestiture Related diversification
Liquidation
Weak Strong
competitive competitive
position Quadrant III Quadrant IV position
Retrenchment Joint Ventures

Related diversification Strategic alliances
Unrelated diversification Merger
Horizontal integration Acquisition
Divestiture Related diversification
Liquidation Unrelated diversification
Slow
Market
Growth
56
1. Strategy for Quadrant I
Products that have a strong competitive position and experience rapid market growth fall
into quadrant I. For Starbucks, such products are typically beverages and foods that enjoy a
high acceptance among customers. Examples are the Frappuccino and the Panini, but also
juices and teas (e.g. Chai). In order to consolidate the market position and boost growth,
Starbucks needs to further develop those product categories. This can be done by adding
flavors, ingredients, or temperature. Starbucks has already applied this strategy on domestic
scale by introducing the Caramel Ribbon Crunch Frappuccino blended beverage or the
Vegie Panini.
2. Strategy for Quadrant II
Products that have a weak competitive position and experience rapid market growth fall into
quadrant II. For Starbucks, product lines such as the K-Cup and VIA instant coffee are good
examples. Having missed out on the first-mover advantage, such products have to quarrel
with strong competitive brands (e.g. Nestl). Hence, their competitive position is weak yet
fast market growth rates in the single-serve coffee sector make them highly profitable. It is
therefore important to further develop the market by redirecting financial resources and
R&D capabilities to making niche products more attractive in the eyes of consumers.
Marketing campaigns that highlight product qualities or appearance make-overs are possible
options to better the competitive position of such products and turn them into stars
(quadrant I).
3. Strategy for Quadrant III
Products that have a weak competitive position and experience slow (or no) market growth
fall into quadrant III. Being portrayed as dogs in the BCG-matrix, such products are
merchandise and traditional coffee-making equipment. As it was shown in the internal
analysis, sales of merchandise products have been declining over the past years (despite the
companys excellent brand image). Sales of traditional coffee making equipment have been
declining as well, mainly because of the single-serve coffee frenzy. Clinching to such
products can have a negative impact on profit. Possible strategic alternatives are therefore
retrenchment and even complete liquidation of product lines. The retrenchment alternative
suggests slimming down the merchandise offering, only keeping items with positive sales
57
figures (e.g. stainless coffee mugs and tumblers or Verismo Machines) and getting rid of
unprofitable product lines (e.g. music CDs). Liquidation suggests offering no merchandise
and solely focus on selling beverage and food products.
4. Strategy for Quadrant IV
Products that have a strong competitive position and experience slow market growth fall
into quadrant IV. For Starbucks, an example would be the classical ground and whole bean
coffee with its different blends. Ground and whole bean coffee have been around almost
since the foundation of the company. Customer have been buying traditional coffee for
decades and Starbucks ground and whole bean coffee products enjoy a high reputation
among customer due to their high-quality image. However, over the past years sales of
traditional coffee have stagnated due to the appearance of single-serve coffee products and
changes in consumer needs. What Starbucks could do to boost sales of traditional coffee
products is to form strategic alliances with large restaurant chains, hotel chains, or specialty
and premium retailers that sell freshly-brewed coffee to customers. This retail strategy has
already been successfully applied in the early stages of Starbucks expansion and needs to be
further developed to boost sales of traditional coffee products.
58
9. Recommendations
Based on the assessment and solution analysis, the following key strategies can be
recommended to Starbucks:
Market penetration strategy: Starbucks should opt for an aggressive expansion

strategy in emerging markets. The aggressive strategic choice can be justified
because Starbucks has a strong competitive position which can be perfectly utilized
in a fast-growing market. The company should utilize its internal strengths to develop
market share in emerging economies, in particular India and Brazil. It is further
recommended to enter new markets with the help of key strategic partners since
they dispose of the necessary market knowledge and political ties which can greatly
facilitate the entry. Moreover, the licensing strategy should be continued for new
markets since it allows local store managers to tailor store format, product mixes,
and price points to the needs, lifestyles, and tastes of local customers and
communities.
Market development strategy in China: Starbucks has already made significant
inroads into China. However, there still remains a lot of untapped potential which the
company can capitalize on. In China it is important to develop marketing strategies
that appeal to younger generations who fantasize about western coffee culture as a
symbol of modern lifestyle.104 Moreover, the importance of partnering up with local
retailers to gain market presence cannot be stressed enough. Since China is not a
homogenous market (it is far too big for that), Starbucks is advised to nurture existing
partnerships as each partner contributes different strengths and local expertise that
can help Starbucks gain an understanding of the different tastes and preferences of
local Chinese customers. Once the market is consolidated, Starbucks is advised to
continue its centralization strategy of buying back stores from local partners to
increase profits and reduce the threat of intellectual property theft.
Market segment development strategy: Starbucks should apply a market segment
development strategy for niche markets in developed economies, in particular the
single-serve-, courtesy-, and flavored coffee segments. Those segments portray
104
Cf. Wang, H. (2012): Online publication
59
positive growth rates and must be exploited if the company plans to increase market
shares in established markets.
Product development strategy: on business level, the company is advised to further
develop successful product lines (Frappuccino, Paninis) so that they do not loose
attractiveness in the eyes of customers. Starbucks also has great growth potential in
Tea and Fresh Juice products, and the company is advised to build up those product
lines alongside their core coffee and food products.
Product positioning strategy: trendy products such as K-cups and VIA instant coffee
packs need to be better positioned in their respective segments in order to fully
exploit profit potentials. The company is advised to build better relationships with
specialty retailers or convenient stores to clinch premium shelf space for such
product lines to increase customer awareness. Moreover, tailored marketing
campaigns are necessary to highlight the benefits such products have over
competitors.
Retrenchment Strategy: Starbucks should consider slimming-down unprofitable
product categories, such as merchandise and traditional coffee equipment. This will
free up additional financial resources which is necessary to further drive the
extension of profitable and currently hip product lines. A liquidation strategy for
the entire merchandise category is not recommendable as certain products still enjoy
high demand among customers (e.g. tumblers and Verismo machines).
Alliances: typical question mark products, such as ground and whole bean coffee
products, should not be given up on since they portray the heart of Starbuck product
portfolio. Growth in this segment can be revived by forming alliances with key
strategic retail partners (e.g. Tata Group or Kraft Foods) who dispose of the necessary
market spread to distribute traditional coffee products.
Most of the strategies that were recommended are already considered in the companys
short- to medium-term objectives (see chapter 8.2), indicating that Starbucks is aware of
potential external threats and opportunities. In other words, Starbucks current strategic
orientation is appropriate for the company to persist in the market, nonetheless it requires
fine-tuning to be sustainable in the short- to medium-term. Following additional
recommendations can be made to help Starbucks improve and sustain its current strategic
orientation:
60
Aggressive marketing campaign in emerging markets: room for improvement exists
in the implementation of marketing campaigns in developing countries. Unlike in
developed markets where Starbucks has already made a name for itself, in emerging
markets Starbuck cannot rely on world-of-mouth marketing as it first has to establish
and consolidate its presence. It is therefore recommended to increase the marketing
budget for growth markets. Marketing campaigns featuring the western, high-
quality, and hip image of Starbucks can help the company offset the low-price
advantage of competitors. Also in developed markets it is necessary to step up
advertising. In contrast to emerging markets, which require a rather all-embracing
marketing strategy, the marketing strategy for developed countries should be fine-
tuned to specific niche markets.
Premium-pricing strategy: it is advisable to aggressively expand the number of stores
at home and abroad in order to not fall behind competitors, who, based on the their
low-cost advantage, are able to attract more customers particularly from the fast-
growing and highly coffee-conscious middle-class in emerging economies. Aggressive
expansion does not mean undercutting competitors. On the contrary, Starbucks
should hold on to its high-quality image. Lowering prices would most likely
mediocritize Starbucks excellent brand image and reputation as a provider of
premium coffee and exceptional service. The company has shown that customers still
value good service, high quality, and a cozy store atmosphere and that they are
willing to pay an extra price to feel special. Especially in emerging markets, pushing
for market share by cutting prices is a losing strategy as new entrants can never out-
cut the prices of local competitors.105
Trend-scouting departments: in the last decade Starbucks has failed to foresee and
capitalize on emerging trends in the coffee market. It is advisable for the company to
establish trend-scouting facilities to better unravel changes in consumer expectations
and behavior.
Price hedging strategy: there have been wide fluctuations in the market prices of
high-quality Arabica coffee beans. Although Starbucks has been able to mollify
extensive price peaks with its excellent supply chain management orientation, the
company could further mitigate price volatility by applying effective hedging
105
Cf. Wang, H. (2012): Online publication
61
strategies. One option could be to use future contracts for purchasing future
quantities at an agreed on price in the present. This will provide Starbucks with more
financial leeway.
62
Appendices
Appendix 1: Comprehensive Strategic Analysis Framework
I. Current Situation Analysis III. Solution Analysis IV.

II. Assessment Analysis
Recommendation
Internal
Characteristics Goals and
(background, Evaluation
organization) Criteria
Current
Past and Expected Propose Strategic Recommendation
Strategy Summary of
Current Performance Strategic Strategic Choice and justification
(corporate Current
and Financial of Current Direction + Alternatives (corporate and of strategy
Performance
competitive Performance Strategy Solution competitive selection
level) Analysis Analysis level)
External
influences
(Macro-
environmental,
industry)
63
Appendix 2: Value Chain
Inbound Operations Outbound Marketing Service
Farm Company- Retailing Word-of- customer

Exporter operated Speciality mouth satisfaction
Broker stores Direct in-store adds individuality
Testing Licensed response atmoshpere
stores
Roasting
Warehouse
Packaging
Appendix 3: Product Portfolio
Product Categories
Beverages Food Packaged and single- Coffee-making
serve coffees equipment and other
merchandise
Bottled Drinks Bakery Profile Brewing Equipment
Brewed Coffee Starbucks Petites Blonde Roast Coffee presses
Evolution Fresh Bistro Boxes Medium Roast Coffeemakers
Chocolate Hot Breakfast Dark Roast Espresso
Beverages Sandwiches, Flavored Coffee Machines
Espresso Paninis and Salads Seasonal Favorites Grinders
Beverages Yogurt and Fruits Form Teapots and Tea
Frappuccino La Boulange Whole Bean Kettles
Blended Evolution Coffee Other Merchandise
Beverages Harvest Ground Coffee Hot Cocoa and
Kids Drinks and Starbucks VIA Treats
others K-Cup Packs Mugs and
Smoothies Pods, Portions Tumblers
Starbucks and Filter Packs Music CDs
Refreshers Verismo System Starbucks Gifts
Beverages Espresso Syrups and Sauces
Teas Macchiato
Iced Teas Beverages
Latte Beverages
Mocha Beverages
Cappuccino
Beverages
Americano
Beverages
Espresso
Beverages
Starbucks Reserve
Coffee
64
Zambia Peaberry
Terranova Estate
Kona Coffee Parry
Estate
Sumatra Blue
Batak
Sun Dried
Ethiopia
Yirgacheffe
Finca Nuevo
Mexico
Source: http://www.starbucks.com/
Appendix 4: Starbucks Global Responsibility Program106
Community Ethical Sourcing Environment

Community Service: Coffee: Coffee and Farmer Recycling and Reducing
Hosting community Equity (C.A.F..E) Practices Waste: Starbucks recycles
service projects helps farmers to grow waste directly in stores,
Thriving Neighborhoods: coffee in a way that is uses greener and reusable
hosting get-togethers and both better for people cups, and engages in
charity events and the planet composting practices
Volunteer Canada Farmer Support: Loan Energy: Starbucks is
Partnership: 10 cent programs have committed purchasing renewable
donation per returned over $15 million to a energy that represents
tumbler to Volunteer variety of farmers 20% of the total electricity
Canada Tea: Community Health used in the Starbucks
Youth Action: Starbucks and Advancement stores
Youth Action Grants Initiative (CHAI) targets Water: Starbucks dipper
encourage teens to make the needs of tea- and well system is reducing
a difference spice-growing the consumption of water
Starbucks Foundation: communities with health Green Building: Starbucks
Supporting Coffee, Tea, services and economic is building energy-efficient
Cocoa communities, development stores according to the
access to clean water, Cocoa: Starbucks LEED certification
fostering education in collaborates with The Climate Change:
China, and rebuilding the World Cocoa Foundation, Starbucks partnership
gulf coast adheres to the Cocoa with Conservation
Ethos Water Fund: 5 cent Practice Guidelines, and International helps to
donation for each bought supports the ECHOES improves coffee
bottle of Ethos water Alliance with a production, conserve and
People with disabilities: contribution of $200,000 restore natural habitat,
Starbucks is complying over three years and facilitates access to
with the Accessibility for forest carbon markets
Ontarians and Disabilities
Act
Source: http://www.starbucks.com/
106
http://www.starbucks.ca/responsibility
65
Appendix 5: Organizational Chart
CEO
Howard Schulz
CFO
T. Alstead
President SB President SB President Global President Global Seattle's Best

Executive V.P. CMO
Coffe U.S. Coffee Int. Food Service Development Coffee
P. Boggs C. Burrows J. Culver J. Hansberry A. Rubinfeld M. Gass A. Scrivner
Appendix 6: Global Coffee Consumption (millions of 60 kg bags)
100
90
80
70
Starbucks funded
60
50
40
30
20
10
0
1860
1990
2004
1850
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
2000
2001
2002
2003
2005
2006
2007
2008
2009
2010
2011
Source: UNCTAD
66
Appendix 7: Store development 1971 to 2010
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
1998
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: http://globalassets.starbucks.com/assets/c60c79d6c3a247e284640f17f1806283.pdf
Appendix 8: Price Comparison between Starbucks, McDonalds, and Dunkin Donut
Beverage/Company Starbucks McDonalds Dunkin Donut

Hot Black Coffee $1.95 $1.69 $1.89
Iced Mocha $3.95 $2.99 $2.29
Source: http://www.tampabay.com/features/food/general/coffee-wars-taste-test-of-starbucks-mcdonalds-7-
eleven-and-dunkin-donuts/1012417
67
Appendix 9: Dimensions and Evaluation of SPACE Matrix
Competitive Advantage (CA): As it was mentioned in the Current Performance Assessment

Analysis (chapter 7.1), Starbucks has a competitive advantage in market leadership, superior
store location, supply chain management, and brand image.
Financial Strength (FS): As it was analyzed in the Financial Performance Analysis (chapter
6.1.4), Starbucks ratios are generally healthy. Especially the profitability and liquidity ratios
have improved substantially since the downturn in 2008.
Industry Strength (IS): Based on Porters Five Forces (chapter 6.2.2), it can be concluded that
the industry is indeed competitive and that high bargaining power of suppliers and buyers
will make it even more competitive in the future. Nonetheless, potentially high growth rates
(especially in emerging markets) make the global coffee market highly profitable.
Environmental Stability (ES): Based on the PESTEL analysis (chapter 6.2.1), it can be
concluded that the macro environment is generally positive for Starbucks. The world
economy is gradually recovering from the 2008/2009 recession and coffee consumption is
gradually increasing. Higher technological and environmental standards portray challenges
for Starbucks in the future. Also, intellectual property infringements in developing countries
have to be dealt with.
68
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than the ones stated.
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S T A R B U C K S I N C.

A Strategic Pathfinder for STARBUCKS

Strategic Management Report A Strategic Pathfinder

Assignment for the module Strategic Management

Summer Semester 2014

Lecturer: Mrs. Kaur-Lahrmann

Authors: Elin Lee (598736)

Submission date: 6th of June 2014

Executive Summary ................................................................................................................................. 3

Despite a positive market outlook, Starbucks is in need of strategic counseling as the

Backing the comprehensive strategic analysis will be a multitude of strategic management

PORTERS GENERIC STRATEGIES

INTERNAL FACTOR EVAULATION MATRIX (IFE)

PORTERS FIVE FORCES

1. Threat of established rivals: how saturated is the market with established

EXTERNAL FACTOR EVALUATION MATRIX (EFE)

1. Maxi-Maxi Strategies: strategies that use strengths to maximize opportunities.

GRAND STRATEGY MATRIX

6.1. Internal Analysis

6.1.1.Company Background Analysis

Ownership and Control

Vision, Mission, and Principles

Stars Question Marks

Cash Cows Dogs

Source: Own illustration

Table 1: Product-Customer Matrix

Products/Customers Kids and Teens Young Adults 25-40 years

6.1.2.Internal Characteristics Analysis

Resources, Skills, and Attributes

2. Global Market Expansion Strategies

3. Product Portfolio Diversification Strategies

4. Market Segment Diversification Strategies

5. Social and Environmental Stewardship

6. Brand Modernization Strategy

Business Level Strategy

As a result, the company is more production-oriented than marketing-oriented. As it was

2. Value Chain Strategy

6.1.4.Financial Performance Analysis

Table 2: Ratio Analysis

In millions USD 2010 2009 2008

Sales growth rate 9.54% -5.86% -

Net income $948.3 $390.8 $315.5

Net income growth 142.66% 23.87% _

Net earnings-diluted $1.24 $0.52 $0.43

Gross profit margin 58.36% 55.36% 55.26%

Debt-to-Equity-Ratio 0.74 0.83 1.28

Fixed Asset Turnover 4.43 3.85 3.51

Total assets turnover 1.68 1.75 1.83

6.1.5.Internal Factor Evaluation Matrix

Key Internal Factors Weight Rating (1-4) Weighted Score

In China, the government is rigorously promoting the establishment of a coffee culture.

Especially in China, western companies have frequently experienced infringements on their

Figure 2: Porters Five Forces

Threat of Bargaining Power of

Source: Own illustration

Threat of Established Rivals (HIGH)

Threat of New Entrants (LOW)

Bargaining Power of Buyers (HIGH)

Threat of Substitutes (MEDIUM)

Bargaining Power of Suppliers (HIGH)

6.2.3.External Factor Evaluation Matrix

Key External Factors Weight Rating (1-4) Weighted Score

7.1. Current Performance Assessment