Strategic Management: A Strategic Pathfinder For STARBUCKS

S T A R B U C K S I N C.
Strategic Management
Report
A Strategic Pathfinder for STARBUCKS
Version 1.0
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: 6
th
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.
Table of Content
Executive
Summary .................................................................................................................
................
1. Introduction .......................................................................................................
..............................
2.
Problem
Definition ..........................................................................................................
................
3.
Report
Objective ...........................................................................................................
...................
4.
Report
Framework ........................................................................................................
..................
5.
Theoretical
Framework ........................................................................................................
...........
6.
Analysis of Current
Situation .........................................................................................................
6.1
Internal
.
Analysis ........................................................................................................
................
6.1.1
Company Background
.
Analysis..............................................................................................
6.1.2
Internal Characteristics
.
Analysis ............................................................................................
6.1.3
Strategy
.
Analysis ........................................................................................................
...........
6.1.4
Financial Performance
.
Analysis .............................................................................................
6.1.5
Internal Factor Evaluation
.
Matrix..........................................................................................
6.2
External
.
Analysis .........................................................................................................
...............
6.2.1
Macro-Environmental
.
Analysis .............................................................................................
6.2.2
Industry
.
Analysis ........................................................................................................
............
6.2.3
External Factor Evaluation
.
Matrix .........................................................................................
7.
Assessment Analysis
(Fulcrum) .....................................................................................................
7.1
Current Performance
.
Assessment .............................................................................................
7.2
Expected Performance
.
Assessment ..........................................................................................
7.3
Developing Strategic
.
Focus .......................................................................................................
8.
Solution
3
5
6
6
6
7
1
4
1
4
1
4
1
9
2
1
2
8
3
0
3
2
3
2
3
7
3
9
4
1
4
1
4
4
4
7
5
Analysis ............................................................................................................
................
8.1
Strategic
.
Alternatives ..................................................................................................
..............
8.2. Goals and Evaluation
Criteria ....................................................................................................
8.3
Strategy
.
Selection ........................................................................................................
..............
9. Recommendations...........................................................................................
..............................
Appendices ............................................................................................................
................................
Bibliography ............................................................................................................
...............................
Declaration ............................................................................................................
................................
0
5
0
5
1
5
3
5
9
6
3
6
9
7
3
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
3
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 trendscouting 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.
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 LatinAmerican 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 singleserve 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,
Starbucks has never been healthier, more connected to customers and

partners, or better positioned to go after tremendous business
opportunities that lie ahead.
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.
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 shortwinded. 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).
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
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 mutuallyexclusive 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-todate 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.
7
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 (industrywide) 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:
Cf. Maxi-Pedia (2014a): Online publication
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?

9
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:
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 overall business strategy.
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
Cf. Maxi-Pedia (2014b): Online publication
1
0
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:
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-
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:
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 (topleft quadrant), defensive (bottom-left quadrant), or competitive (bottomright 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:
Cf. Maxi-Pedia (2014c): Online publication
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:
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.
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.
Vision, Mission, and Principles
11
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
1
4
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
1
5
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
1
6
Figure 1: BCG Matrix

Sales growth
Stars
Question
Marks
Foods
Whol
e
bean
coffe
e
Profitabi
lity
Beverag
es
Merc
h
andis
e
Cash Cows
Dog
s
Source: Own illustration
The BCG matrix shows that the beverage category (including all over-thecounter 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.
17
Customers
Table 1: Product-Customer Matrix
Products/Customers
Beverages
Foods
Kids and
Teens
Passiveness
Taste
Whole
and bean
soluble
coffees
Coffeeequipment making
and
other merchandise
Young Adults 25-40 years

Coolness
Social Status
Complementar Nutrition
y
Loyalty
Fashion,
Coolness
Loyalty
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
14
Cf. OFarrell, R. (n.d.): Online publication

Cf. OFarrell, R. (n.d.): Online publication
1
8
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 fastgrowing 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
1
9
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 fastgrowing 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 2010
19
), 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
18
19
Cf. Starbucks Website (2014b): Online publication

Cf. Dahlin, P. (2008): p. 47
Cf. Starbucks Corporation (2010): p. 4
2
0
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

2
1
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
2
2
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 coffeeconsuming 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
Cf.
Cf.
Cf.
Cf.
Reed,
Reed,
Reed,
Reed,
M.,
M.,
M.,
M.,
Brunson,
Brunson,
Brunson,
Brunson,
R.
R.
R.
R.
(2011):
(2011):
(2011):
(2011):
p.
p.
p.
p.
168
168
175
173
2
3
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.
writing
31
In 2011, Starbucks unveiled a new logo, leaving out the
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
30
31
Cf. Connor, M. (2013): Online publication

Cf. Morio, L. (2004): Online publication
2
4
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 whollyowned 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

2
5
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 marketingoriented. As it was mentioned before, Starbucks is relying on word-ofmouth 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
2
6
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
39
Cf. Flat World Knowledge (2012): Online publication

Cf. Fortune (2012): Online publication
2
7
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
Growth
$9,774.6
2008
Sales
$10,707.4
Sales growth
rate
Net income
9.54%
-5.86%
$948.3
$390.8
$315.5
Net income
growth
142.66%
23.87%
$10,383.0
40
41
42
43

28
rate
Net earningsdiluted
$1.24
$0.52
Profitability
55.36%
$0.43
Gross profit
margin
58.36%
Operating
income
margin
ROA
ROE
13.26%
5.75%
4.85%
14.85%
25.81%
7.01%
12.83%
5.56%
12.67%
Leverage ratio
45.39
55.26%
Debt-to-totalassetsratio
Debt-to-EquityRatio
42.46
0.74
0.83
1.28
Long-term-debtto
0.13
0.15
0.18
Times-InterestEarned
ratio
Equity multiplier
44.95
15.3
9.6
Inventory
Turnover
Days sales in
inventory
Receivables
turnover
Days sales in
receivables
NWC turnover
Fixed Asset
Turnover
8.21
56.09
Equity ratio
1.74
1.83
Activity Ratio
6.50
2.28
6.70
44.46
56.15
54.40
35.37
36.07
31.51
10.32
10.12
11.58
9.18
4.43
8.57
3.85
-19.84
3.51
Total assets
turnover
1.68
1.75
1.83
Current ratio
Quick
ratio
Cash ratio
NWC to total
asset
ratio
2.36
2.15
0.43
0.58
Liquidity ratio
2.20
1.94
0.24
0.55
1.78
1.57
0.08
0.44
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
2
9
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. shortterm 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 shortterm 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.
3
0
Table 3: IFE Matrix

Key Internal Factors
Strengths
Successful and popular
product
lines such as VIA instant
coffee,
K-cups, Frappuccino, or
Paninis
Access to premium and
highquality Arabica beans
obtained
through Fair Trade and
strong
supplier relationships
Strong supply chain
management
Strong intellectual property
(Starbucks Roast,
Clover
Brewing System)
Healthy financial situation
(positive ratios)
Highly recognizable brand
image
and comfortable store
atmosphere
Highly motivated,
professional
workforce and good
customer
service (Top employer
company)
Strong and reputable
strategic
partners (Tata, Target,
Green
Mountain, etc.)
Variety of flavors
Weaknesses
Overextension of product
portfolio causes brand
confusion
and loss of brand identity
High prices increase
competitive
pressure
Weight
Rating (1-4) Weighted

Score
0.15
0.6
0.1
0.4
0.1
0.4
0.05
0.2
0.1
0.3
0.1
0.4
0.05
0.2
0.05
0.15
0.05
0.15
0.1
0.1
0.1
0.1
Environmental issues
concerning
waste water jeopardize
brand
image
TOTAL
0.05
1.00
0.1
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.
3
1
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 overall business strategy.
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
44
leaves to sowing coffee seeds.

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
3
2
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
48
Cf. Khairulyakub (2011): Online publication

Cf. Li, Z. (2012): Online publication
49
50
51
52
Cf.
Cf.
Cf.
Cf.
Li, Z. (2012): Online publication

Starbucks Corporation (2010): p. 3
Starbucks Corporation (2010): p. 30
Trading Economics (2014a): Online publication
3
3
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 PanAmerican 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
55
56
Cf. Trading Economics (2014c): Online publication

Cf. Pendergrast, M. (2001): p. 85
Cf. Li, Z. (2012): Online publication
3
4
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 fastmoving 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
59
Cf. Cunningham, E. (2010): Online publication

Cf. Global Coffee Report (2013): Online publication
3
5
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
3
6
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
Bargaining
Power of
Suppliers
Threat of
Established Rivals
5
4
3
2
1
Threat of
New
Entrants
Threat of
Substitut
es
Bargaining Power
of
Buyers
62
Cf. DeVault, G. (n.d.): Online publication
63
64
Cf. Intellectual Property Office (2013): p.7

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

3
8
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
Opportunities
Expansion to emerging
markets,
in particular to China, India,
and
Brazil
High growth potential of
singleserve (instant) coffee
market
both in the U.S. and abroad
High potential for flavored
coffee
in the US market ($US 377
million)
High potential for courtesy
coffee
products
Threats
High bargaining power of
suppliers raises prices of
coffee
beans
Trademark infringements,
particularly in emerging
markets
Increased competition from
local
coffee companies and
international entrants in
emerging markets
Saturated markets in
developed
economies
Increasing price sensitivity
of
Starbucks customers
Negative publicity because
of
water treatment
Total
Weight
Rating (1-4) Weighted

Score
0.2
0.8
0.1
0.3
0.05
0.1
0.05
0.1
0.15
0.6
0.1
0.3
0.15
0.15
0.05
0.1
0.1
0.1
0.05
0.15
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.
4
0
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
4
1
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.
market share of nearly 70 percent.
71
70
In China, Starbucks holds a
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 longlasting 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
72
73
Cf. Burkitt, L. (2010): Online publication

Cf. The Jeebboo Gazette (2012): Online publication
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 finetuning 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
76
77
Cf. Brown, N. (2012): Online publication

Cf. Hong, D. (2013): Online publication
Cf. Kulkarni, M. (2013): Online publication
4
4
78
annual rate of approximately five percent. Economic stability and higher

wages have led to an expanding middle-class which accounted for 42
79
percent in total coffee consumption in 2009. 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 highquality
Arabica
coffee
beans
widening,
competitors is closing. Sometimes, the service
the
quality
gap
between
78
Cf. Bartender (2013): Online publication
79
80
81
82
Cf.
Cf.
Cf.
Cf.
Bartender (2013): Online publication

Rabobank (2013): slide 7
Geller, M., Dalal, M. (2012): Online publication
Rabobank (2013): slide 7
4
5
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
4
6
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 singleserve 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
Cf. Rabobank (2013): slide 7
4
7
Table 5: SWOT Analysis

Strengths
1. Successful and popular products
lines
2. Access to high-quality Arabica
coffee
beans
3. Strong supply chain management
4. Strong intellectual property and
R&D
capabilities
5. Strong financial muscle
Opportunities
1. High growth rates in emerging
markets
(China, India, Brazil)
2. High growth potential of the
single-serve
coffee market
3. High growth potential for flavored
coffee
in the U.S.
4. High growth potential for courtesy
coffee
products
6. Strong brand image

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
Weaknesses
(W)
Strengths
(S)
Opportunities (O)
SO
Maxi-Maxi Strategy
1. Utilize financial power and
brand
image to spur expansion in
emerging
markets (S5,6; O1)
2 Utilize strong intellectual
. properties
and strategic partnerships to
tap
into/further expand in the
singleserve coffee market (S4.8; O2)
3. Utilize the wide variety of
flavors and
successful product lines to
penetrate
the flavored coffee market in
the U.S.
(S1,9; O3)
4. Utilize high quality, brand
image, and
customer service to penetrate
the
courtesy coffee market in the
U.S.
(S2,6,7; O4)
WO
Mini-Maxi Strategy
1 Redirect focus to profitable
. niche
markets to avoid
overextension of
portfolio in unprofitable
market
segments (W1; O2,3,4)
2. Tackle middle-class customer
in
to affordable levels (W2; O1)
emerging market by adjusting prices
Threats (T)
ST
Maxi-Mini Strategy
1. Utilize strong supply
chain/supplier
relationship management to
reduce
bargaining power of supplier
(S3, T1)
2. Focus on quality, customer
service,
brand reputation, and key
strategic
partners to counter low-price
offering
of competitors (S2,6,7,8; T3)
3. Utilize strong intellectual
property and
R&D capabilities to penetrate
niche
segments in saturated
developed
markets (S4; T4)
WT
Mini-Mini Strategy
1. Discard unprofitable product
lines to
avoid portfolio overextension
and
foster profitable product lines
to
exploit niche market (W1; T4)
2. Lower prices in reaction to
increasing
price sensitivity of customers (W2; T5)
The TOWS analysis has highlighted four, broad strategic directions from
which possible
strategic alternatives can be drawn.
4
9
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 highquality and exclusive brand image. Good customer
5
0
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,
achievable, realistic, and time-bound (SMART principle).
measurable,
51
Table 7: Starbucks Goals and Objectives

Goals
Expand market position in the
China-AsiaPacific (CAP) market (in particular
India,
Japan, and Korea)
Build China as a second home

market
outside the United States
Expand market leader position in

the
Americas
Develop current position in the fastgrowing

single-serve coffee market
Become the first coffee company to

offer
mobile payment
Improve and develop ethical

sourcing
practices
Objectives
Open 1,500 stores in China until
2015
Double the number of cities until
85
2015
Acquire full ownership of all
stores in
China from joint venture partner
Maxims
Caterers Limited to expand
control in
central, southern, and western
86
China
Expand number of stores in Japan
to
87
1,000 by 2013
Expand number of stores in Korea
to 500
88
by 2013
Complete the joint venture with
Tata
Group in 2011 to increase
market
89
presence in India
90
Open 3,000 stores until 2015
Acquire Peets Coffee and Tea
Incorporated in 2011 to
consolidate and
91
grow market share
Further increase presence in
Brazil by
92
opening 100 stores in 2011
Enter into expanded, long-term
strategic
partnership with Green Mountain
Coffee
to increase sales of K-Cup packs
and
93
Keurig Brewers
Launch mobile payment system
for
BlackBerry and iPhone in all U.S.based
94
stores in 2011
Extension of line of credit for
farmers to
95
$20 million by 2015
Enter the courtesy coffee market in

the
United States
8
5
8
6
8
7
8
8
8
9
9
0
9
1
9
2
9
3
9
4
9
5
9
6
Purchase of coffee which is 100%

sourced according to the ethical
criteria
96
of C.A.F.E by 2013
Establish partnership with in-room
market leader Courtsey Products
in 2011
Cf. Vanderborg, C. (2013): Online

publication
Cf. Zhihao, T. (2011): Online publication
Cf. Chowdhury, S. (2012): Online
publication
Cf. Chowdhury, S. (2012): Online
publication
Cf. Canterbee, J. (2011): Online publication
Cf. Vanderborg, C. (2013): Online
publication
Cf. The Motley Fool (2013): Online
publication
Cf. Hardy, E. (2011): Online publication
52
Increase the number of whollyowned

company stores
to gain access to 500,000 luxury

and
premium hotel rooms in the
United
97
States
Acquire full ownership of stores in
98
Switzerland and Austria in 2011

Acquire full ownership of stores in
mainland China by buying stores
from
99
Maxims caterer
Improve and accelerate supply chain Build 100,000 distribution centers
in 20
100
activities
countries by 2015
Improve customer loyalty
Introduce My Starbucks Rewards
by
101
2013
Improve and develop current
Acquire Atlanta-based tea store
position in the
chain
Teavana Holding Incorporated in
tea market
2012 to
expand in the $40 million global
tea
market and claim a leading
102
position
Extend product portfolio, especially By the end of 2013, Starbucks
the food
customer
and beverage lines
in the U.S. will be able to enjoy La
Boulange products and Evolution
Fresh
juices in company-operated
103
stores
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
99
100
101
102
103
Cf.
Cf.
Cf.
Cf.
Cf.
Cf.
Starbucks Website (2011): Online publication

China (2011): Online publication
Chowdhury, S. (2012): Online publication
5
3
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
Key Factors
Strengths
Successful and popular product
lines
Access to high-quality Arabica
coffee
beans
Strong supply chain
management
Strong intellectual property and
R&D
capabilities
Strong financial muscle
Strong brand image
Reputable customer service
Strong and reputable partners
Variety of flavors
Weaknesses
Overextension of product
portfolio
High prices of products
Environmental issues
Sum Weights
Opportunities
High growth rates in emerging
markets
High growth potential of singleserve
coffee market
High growth potential for
flavored
coffee in the U.S.
High growth potential for
courtesy
coffee products
Threats
High bargaining power of
suppliers
Trademark infringements in
emerging
markets
Increasing competition from
local
competitors and new entrants in
emerging markets
Saturated market in developed
economies
Weigh
t
Alternative 1
Alternative 2 (ST)
(SO)
Expand Market
Maintain Market Share
Share
Total
Total
Attract Attractivene
Attractivene Attractiven
ss
ss
ess
Score
Score
Weigh
Score
Score
t
0,15
0,6
0,15
0,3
0,1
0,1
4
4
0,4
0,4
0,1
0,1
2
3
0,2
0,3
0,05
0,1
0,1
0,05
0,05
0,05
4
4
3
3
4
0
0,2
0,4
0,3
0,15
0,2
0
0,05
0,1
0,1
0,05
0,05
0,05
4
2
3
2
1
0
0,2
0,2
0,3
0,1
0,05
0
0,1
0,1
0,4
0,1
0,05
4
1
0,4
0,05
0,1
0,05
4
3
0,4
0,15
0,2
0,8
0,2
0,2
0,1
0,4
0,1
0,2
0,05
0,2
0,05
0,1
0,05
0,2
0,05
0,1
0,15
0,45
0,15
0,6
0,1
0,4
0,1
0,4
0,15
0,6
0,15
0,6
0,1
0,3
0,1
0,4
Increasing price sensitivity of

customers
Sum Weights
Sum Total Attractiveness
Score
0,1
0,3
0,1
0,4
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 profitmaking 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
Marke
t
Growt
h
Quadrant II
Market
development
Market penetration
Product
development
Horizontal
integration
Divestiture
Liquidation
Quadrant I
Market
development
Market
penetration
Product development
Integration (any direction)
Related diversification
Weak
competitiv
e
position
Quadrant III
Quadrant IV
Retrenchment
Joint Ventures
Related
diversification
Unrelated
diversification
Horizontal
integration
Divestiture
Liquidation
Strategic
alliances
Merger
Acquisition
Related diversification
Unrelated diversification
Slow
Market
Growth
Strong
competit
ive
position
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
5
7
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.
5
8
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
5
9
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 slimmingdown 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:
6
0
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, highquality, 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
6
1
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
II. Assessment Analysis
I. Current Situation
Analysis
Internal
Characteristics
(background,
organization)
Current
Strategy
(corporat
e
and
competitive
level)
IV.
Recommenda
tion
III. Solution
Analysis
Goals and
Evaluation
Criteria
Past and
Current
Financial
Performance
Analysis
External
influences
(Macroenvironmental,
industry)
Summary of
Current
Performance
Expected
Performance
of Current
Strategy
Propose
Strategic
Direction +
Solution
Analysis
Strategic
Alternatives
Strategic
Choice
(corporate and
competitive
level)
Recommendation
and justification
of strategy
selection
63
Appendix 2: Value Chain

Inbound
Farm
Operations
Company-
Outbound
Retailing
Exporter
operated
Speciality
Broker
stores
Direct
Licensed
Testing
Marketing
Word-of-
Service
customer
mouth
in-store adds
response
stores
Roasting
satisfacti
on
individual
ity
atmoshp
ere
Warehouse
Packaging
Appendix 3: Product Portfolio

Product Categories
Beverages
Food
Bottled Drinks
Brewed Coffee
Evolution
Fresh
Chocolate
Beverages
Blonde Roast
Starbucks
Petites
Bistro Boxes
Medium Roast
Hot Breakfast
Sandwiches,
Espresso
Machines
Grinders
Frappuccino
Blended
Beverages
Teas
equipment and
other
merchandise
Brewing
Equipment
Coffee presses
Profile
Beverages
Beverages
Kids Drinks
and
others
Smoothies
Starbucks
Coffee-making
Bakery
Espresso
Refreshers
Packaged and
singleserve coffees
Paninis and
Salads
Yogurt and
Fruits
La Boulange
Evolution
Harvest
Dark Roast
Flavored
Coffee
Seasonal
Favorites
Form
Coffeemakers
Teapots and
Tea
Kettles
Whole Bean
Other
Coffee
Merchandise
Ground Coffee Hot Cocoa and
Treats
Starbucks
VIA
K-Cup Packs Mugs and
Tumblers
Pods, Portions
Music CDs
and Filter
Packs
Starbucks Gifts
Verismo
System
Syrups and
Espresso
Sauces
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 Program

Community
Community Service:
106
Ethical Sourcing
Environment
Coffee: Coffee and
Recycling and
Farmer
Reducing
Hosting community
Equity (C.A.F..E)
Waste: Starbucks
Practices
recycles
service projects
helps farmers to grow
waste directly in
stores,
Thriving
coffee in a way that is
uses greener and
Neighborhoods:
reusable
both better for people
cups, and engages in
hosting get-togethers
and
charity events
and the planet
composting practices
Volunteer Canada
Farmer Support: Loan
Energy: Starbucks is
Partnership: 10 cent
programs have
purchasing renewable
committed
over $15 million to a
energy that
donation per returned
represents
20% of the total
tumbler to Volunteer variety of farmers
electricity
used in the Starbucks
Canada
Tea: Community
Health
Youth Action:
and Advancement
stores
Starbucks
Youth Action Grants
Initiative (CHAI)
Water: Starbucks
targets
dipper
the needs of tea- and
well system is
encourage teens to
reducing
make
spice-growing
a difference
the consumption of
water
communities with
Starbucks Foundation:
Green Building:
health
Starbucks
services and
Supporting Coffee,
is building energyeconomic
Tea,
efficient
development
Cocoa communities,
stores according to
the
access to clean water,
Cocoa: Starbucks
LEED certification
collaborates with The
fostering education in
Climate Change:
China, and rebuilding

the
gulf coast
Ethos Water Fund: 5
cent
donation for each
bought
bottle of Ethos water
World Cocoa
Foundation,
adheres to the Cocoa
Practice Guidelines,
and
supports the ECHOES
Starbucks partnership
Alliance with a
contribution of
$200,000
over three years
production, conserve
and
restore natural
habitat,
and facilitates access
to
forest carbon markets
People with
disabilities:
Starbucks is
complying
with the Accessibility
for
Ontarians and
Disabilities
Act
with Conservation
International helps to
improves coffee
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
Coffe
U.S.
C.
Burrows
P.
Boggs
Coffee
Int.
J.
Culver
President
Global
Food Service
President
Global
Development
Seattle's Best
J.
Hansberry
A.
Rubinfeld
M.
Gass
Appendix 6: Global Coffee Consumption (millions of 60 kg bags)

100
90
80
70
Starbucks funded
60
50
40
30
20
10
2011
2009
2010
1850
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
Source: UNCTAD
CMO
Coffee
1980
1990
2000
2001
2002
2003
2004
2005
2006
2007
2008
Executive
V.P.
A.
Scrivner
66
Appendix 7: Store development 1971 to 2010

1800
0
1600
0
1400
0
1200
0
1000
0
8000
6000
4000
2006
2007
2008
2009
2010
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2000
Source:
http://globalassets.starbucks.com/assets/c60c79d6c3a247e284640f17f1806283.pdf
Appendix 8: Price Comparison between Starbucks, McDonalds, and Dunkin

Donut
Beverage/Compa Starbucks
ny
Hot Black Coffee
$1.95
Iced Mocha
$3.95
McDonalds
Dunkin Donut
$1.69
$2.99
$1.89
$2.29
Source: http://www.tampabay.com/features/food/general/coffee-wars-taste-test-ofstarbucks-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
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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S T A R B U C K S I N C.

A Strategic Pathfinder for STARBUCKS

Strategic Management Report A

Assignment for the module Strategic

Summer Semester 2014

bean prices. One major weakness is that continuous adaptations and

retrenchment strategies for unprofitable product lines, and alliances for

Starbucks has never been healthier, more connected to customers and

Moreover, the company remains unsure as to what impact its growth

In the first phase, the current

situation of the Starbucks is analyzed by means of highlighting strengths

of the current strategy is determined by considering past and current

Cf. Reed, M., Brunson, R. (2011): p. 175

Cf. Reed, M., Brunson, R. (2011): p. 175

phase, the current performance of Starbucks is summarized and judged

4. Dogs: product categories which display low sales growth and

Cf. Maxi-Pedia (2014a): Online publication

1. Compile key internal factors: key internal factors are the

stewardship in the industry?

6. Legal Environment: how stringently are intellectual property rights

1. Compile key external factors: key external factors are the

Cf. Maxi-Pedia (2014b): Online publication

rating of 3 represents a response above average, and a rating of 4

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

Cf. MindTools (2014): Online publication

axis. Variables for the environmental stability and financial strength

1. Determine values for dimensions: values for each dimensions

competitive advantage are taken from Current Performance

environmental stability are taken from the PESTEL Analysis.

Cf. Maxi-Pedia (2014c): Online publication

Cf. Maxi-Pedia (2014d): Online publication

1. Provide a list with internal and external factors: strengths and

1. Quadrant I: product categories with a strong competitive position

Cf. Maxi-Pedia (2014e): Online publication

6. Analysis of Current Situation

into the internal composition as well as the external position of the

strengths/weaknesses and opportunities/threats which are important key

The internal analysis is meant to provide a review of Starbucks

6.1.1. Company Background Analysis

It is Starbucks mission to inspire and nurture the human spirit; one

Cf. Boardman, A., Vining, A. (1999): p. 3

Cf. Yahoo Finance (2014): Online publication

atmosphere as the highest value to its customers, employees, and

abroad with success. Thus, Starbucks channel development segment

of beverages have been decreasing in 2010 as compared to the previous

The detailed product portfolio can be found in appendix

merchandise. In order to determine which product categories are the most

Figure 1: BCG Matrix

Source: Own illustration

underperforming category is coffee-producing equipment and other

Young Adults 25-40 years

Source: Own illustration

Starbucks is catering its products to three different customer groups: kids

This age group perceives Starbucks as a status symbol. For them,

Cf. OFarrell, R. (n.d.): Online publication

Acquisitions and Alliances

6.1.2. Internal Characteristics Analysis