FREE ESSAY ON STARBUCKS

STARBUCKS

II. Starbucks Mission Statement
Establish Starbucks as the premier purveyor of the finest coffee in the world while
maintaining our uncompromising principles as we grow. The following six guiding
principles will help us measure the appropriateness of our decisions. Provide a great
work environment and treat each other with respect and dignity. Embrace diversity as an
essential component in the way we do business. Apply the highest standards of excellence
to the purchasing, roasting, and fresh delivery of our coffee. Develop enthusiastically
satisfied customers all of the time. Contribute positively to our communities and our
environment. Recognize that profitability is essential to our future success.
III. Company's goals and objectives
Starbucks had some very good and professional goals for their company in the future. Not
all goals were about dominating the market, but some were to earn the respect of
customers and stockholders. Shultz wanted the company to become the most respected brand
name in coffee and for the company to be admired for its corporate responsibility. He
spoke of having a keystone value in the effort "to build a company with soul". That
keystone value was that the company would never stop pursuing the perfect cup of coffee.
Shultz wanted Starbucks to be known as the best place to buy specialty coffee that did
not add any artificial flavoring polluting their product. Along with earning the respect
of customers, Shultz also wanted to keep the respect and treat his employees with care.
He wanted to offer Health benefits and stock options to all employees who worked 20 or
more hours per week. Starbucks wanted to become a national company with values and
guiding principles that employees could be proud of.
Earning the respect of customers and employees were not the only goals of Starbucks, but
like any other company, growth was also on the mind. One of the first goals and dreams of
Shultz was to setup Espresso bars in all the stores like he had experienced in Italy. He
felt that the friendly and pleasurable environment would help the company grow and make
customers feel that coming to a Starbucks was a good time. Shultz also had a plan to open
125 new stores outside the Pacific Northwest and outside the United States in the next
five years. He wanted to open 15 stores the first year and five more each additional
year. To keep the quality of coffee that Starbucks sold, Shultz felt that the store
should only be company-owned and not franchised out.
IV. Situation Analysis
-Strengths and weakness, opportunities and threats
Starbucks, like many other companies had some strengths and weaknesses. One of the best
strengths that a company can have is a CEO who is not afraid to take a chance and try
knew things. Before Shultz came over to Starbucks the company did not have any plans of
major growth or product expansion. Companies should always have knowledge of what they
are selling and that is what Starbucks did. They knew everything that there was to know
about coffee and if they didn't they would find out. Starbucks always prepared all of
their managers and employees by sending them to training seminars and classes to learn
how to roast the perfect bean, brew the perfect cup and how to serve each customer
correctly. Starbucks believed in quality of its products and the character and location
of its stores.
Companies all have strengths, but they also have weaknesses to. Weaknesses were very easy
to see when the company was first put together. Baldwin and Bowker were very
narrow-minded and had no desire to expand the company very far. The two were also afraid
to try knew things such as starting an Espresso bar and a sit in area where people can
sit around, talk and make new friends. Though after Shultz took over the company, it
seemed as though the weaknesses started to dissolve and the opportunities began to grow.
Shultz took advantage of the opportunity to expand the company into new areas and
markets. Entering new markets brought forward the idea of creating new product lines.
They started by selling bakery goods at the espresso bars and along with selling their
beans, they began to sell their Starbucks Barista home espresso machine. Opening the
Espresso bar also enabled them to sell the CD's that the company played while customers
sat and drank. Partnering with Dreyer's and Pepsi enabled Starbucks to put their name on
ice cream products and the cold beverage market by creating Frappuccino. This all enables
the company to earn an additional profit.
Expanding too fast is one of the most important threats that Starbucks may encounter.
Opening all these new stores at such a drastic rate can cause the company to endure major
debt. Debt can cause a series of chain reactions leading to lower wages, cutting
benefits, closing stores and laying off workers. These are not major threats now, but at
an uncontrollable rate, this is one of the main threats that can really affect the future
of Starbucks Coffee.
-Financial Ratio Analysis
Comparing Starbucks financial ratios to that of the Industry can give us a general
perspective of Starbucks financial strength. This could also give some indication of
stock price performance. Most of Starbucks ratios are in line with the industry average,
but there are a few that could explain the poor stock performance recently experienced.
Starbucks price to earnings ratio is well above the industry average, but this could be
due to its relative high growth it has experienced. Return on equity is well below the
average for the industry, and this could be an area of concern. This suggests that the
investment made by shareholders in the firm has not produced a decent return when
compared to the industry average. Starbucks gross margin is also below the average for
the industry, suggesting that it is not able to cover its operating expenses as well as
other firms in the industry.
-State of the Industry
The face of the coffee industry has changed dramatically this decade. The number of
coffee shops in operations has more than quadrupled since 1991. As of 1997 eight thousand
specialty coffee outlets were in operation in the United States. Starbucks good fortune
in this industry motivated many aspiring rivals in this industry to pursue a plan of
expansion. Analysts of this of the coffee specialty arena believe there is room for two
or three major competitors. As of 1997 Starbucks closest competitor, Second Cup which is
based mainly in Canada was less than a third of its size. As of August of 1999 Starbucks
had opened 2,152 stores in the United States. Starbucks also opened 252 stores
internationally. Most of Starbucks international stores were located along the Pacific
Rim and the United Kingdom. During the fiscal year of 2000 Starbucks plans to open 600
new stores, 450 in the United States, the rest abroad.
-Competitors and their stance
Starbucks may eventually encounter formidable competition. Before 1997 no adversary of
Starbucks had as many as 250 stores. In contrast Starbucks had opened over 1500. However
according to the Starbucks case analysis there were at least twenty different local and
regional chains that wanted to become serious rivals of Starbucks. Such prospects
included New World Coffee, Coffee People, Coffee Station, Java Centrale, and Caribou
Coffee. Many observers expected these chains to merge to better validate themselves as an
alternative to Starbucks. New World in particular is making a concerted effort to compete
with Starbucks. In August of 1998 New World purchased Manhattan Bagel Inc. Currently New
World not only sells coffee but also is the second largest Bagel retailer in the United
States. Also New World Coffee purchased Chesapeake Bagel Bakery. New World's identity is
a franchise that sells specialty coffee and bagels. At the end of 1998 New World had
franchised, licensed, or owned 335 stores in 18 states, Washington, DC and
internationally. New World is growing very rapidly. On Aug 12, 1999 New World reported a
%668 increase in second quarter earnings.
V. Alternative Solutions
There are three basic strategies Starbucks could implement to improve there position as
the leader in specialty coffee sales. The first is a pricing and/or promotion campaign.
For years, Starbucks has relied on word of mouth to build their customer base. But with
such an aggressive expansion track, Starbucks could benefit from some instant exposure to
introduce themselves to those in new areas that have not heard of Starbucks. While this
is a viable alternative, it is not the one of choice. Starbucks has a history of creating
a clientele rather than advertising for one. Temporary pricing promotions seem to
contradict the lifestyle choice of Starbucks customers. Starbucks coffee is a quality
product offered at a higher price for customers who appreciate it and can afford it. 
Another direction the company could go would be to cut expansion and decrease the
channels of distribution of their products. Starbucks has expanded at a torrid pace of
more than a store a day in 19xx. Each new store costs the company $315,000 to build.
Starbucks is moving fast into many different areas of distribution as well. Their coffee
is now being sold in grocery stores and even on the Web. Starbucks runs the risk of over
exposing itself to the public, and with so many different channels of distribution, may
even curtail customer traffic in their own stores. However, long term debt for the
company has been more than held in check. Starbucks owes less than #### in long term debt
and of the 1500 new stores opened in 1997, only two have since been closed down. And in
1997 new stores generated an average of $700,000 in sales compared with new stores in
1992 at $427,000. Starbucks should cut back on some of the products they offer,
especially on their Web site. The only tie-in these products have with Starbucks is their
high price. Starbucks has taken some criticism for over-saturating the market with their
coffee, but putting an end to expansion because a few numbers have slipped is not the
answer.
Slowing expansion, rather than stopping it, seems to be a better strategy. Concentrating
on existing stores to fend off possible competition from other firms is the best choice
for the company. Starbucks must be sure that the current level of management is capable
of being stretched even thinner before it should think about further expansion. For years
Starbucks has stressed quality and has carefully trained its employees and managers in
the art of brewing a better cup of coffee. In the past, techniques were studied and a
great importance was given to understanding the process involved in giving the customer
what he or she wants. New stores will have employees that may be rushed into service and
the culture of Starbucks cannot be force-fed.
The competition with Starbucks for specialty coffee sales is increasing. Its nearest
competitor has only a fourth of the stores Starbucks has, but the overall increase is
significant. The number of coffee cafes in the United States has risen from 500 in 1992
to a predicted 10,000 by the end of this year.
Starbucks may have gotten off track a little bit with an overzealous lust for expanding
too fast into every market. Easing off expansion while concentrating on their core
competencies should ultimately enable Starbucks to reach its goals of serving quality
coffee in over ten thousand stores worldwide. 
VI. Answers to Questions
1.) Howard Schultz is a CEO with a vision. He want's Starbucks to be the most recognized
and respected brand of coffee in the world. He believes in creating a Starbucks lifestyle
by selling various items over the Internet. He want's Starbucks stores all over the
world, and continues expanding Starbucks internationally. Howard Schultz is fixed on
creating an environment to completely satisfy customers, while maintaining a positive
workplace for employees. He also pursues the profitability of Starbucks, to ensure future
business success. As compared to Al Dunlop, Al also had a vision but it was more short
term oriented. Al's vision was to rebuild Sunbeam and make it a profitable business, and
maximize shareholder wealth. 
2.) The key elements of Starbucks strategy is to expand Starbucks globally, and to
further develop its Internet business. The Strategy has changed over time as the business
has grown exceptionally well in North America, and now they want to take that success
over seas. At first the strategy was to create a pleasing atmosphere for customers as
well as employees, and to build the Starbucks brand. The strategy has worked; proof to
that would be the exceptional growth the company has experienced. 
3.) The management of Starbucks communicated the strategy and strategic changes to the
members of the company by allowing them to feel as if they are an important part of the
business. Employees receive extensive training, and are encouraged to help Starbucks
become a better company. Management has created a workplace where the employee can speak
his mind without the fear of any retribution. Employees can discuss issues with
management vocally or through the use of comment cards. Management strives to instill a
guideline of values and principals (developed by management and employees) on how to
completely satisfy customers. They have done a good job as Starbucks continues to be a
successful company maintaining customer satisfaction and providing a good working
environment. 
4.) Starbucks has had great financial performance from 1992 to 1998. Revenues along with
earnings have increased dramatically. The Strategy has worked well for Starbucks, they
have had strong financial performance, and they still continue to grow.
5.) Howard Schultz should continue to expand the Starbucks brand internationally,
focusing on the Asia Pacific region. There he has the greatest potential in being
successful. As far as expanding into Europe, he should take his time developing a solid
plan before trying to compete with local coffee bars. Starbucks will probably receive the
most resistance here. Schultz may have gone to far by trying to create a lifestyle easily
purchased off the Internet, and should focus on selling coffee related products. Part of
the drop in stock price in July was due to the Internet business as investors felt it
would not be successful. Schultz should use the Starbucks brand to sell coffee, not home
furnishings.