CASE STUDY

STARBUCKS—GOING GLOBAL FAST

 Global Marketing
Submitted To:
Mirza Mohammad Didarul Alam
School of Business
United International University

Course Code: MKT - 4309

Section: A

Submitted By:

Roll No. Name Id. No.

5 Md. Shakhawatul Islam 111 093 033
8 Md. Shafikul Islam 111 093 141
13 Md. Jamir Hossain 111 101
14 Kawsar Ahamed 111 101
18 Khan Mohammad Nahian 111 103

Date of Submission:
March 11, 2014
Letter of Transmittal

March 11, 2014

To
Mirza Mohammad Didarul Alam
Assistant Professor
School of Business
United International University.
Subject: Letter of transmittal for Case Study.

Sir,
With due honor, we are wishing to inform you that it was a matter of great pleasure as
well as learning to prepare the case study of “Starbucks—Going Global Fast”. To
prepare the term paper, we collected and studied materials in due time and analyzed
these and eventually finalize the case study.
Actually we have enjoyed more in preparing this case study. Our team has worked hard
to prepare this report. So we would be highly obliged if you kindly accept the content of
the report.
Though we have put our best efforts yet it is very likely that the report may have some
mistakes and omissions that are unintentional. So, we hope that the report will worthy
of your consideration.

On behalf of the group

………………………
Md. Shakhawatul Islam
ID – 111 093 033
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CASE 1-1 Starbucks—Going Global Fast

The Starbucks coffee shop on Sixth Avenue and Pine Street in downtown Seattle sits serene
and orderly, as unremarkable as any other in the chain bought years ago by entrepreneur
Howard Schultz. A few years ago however, the quiet storefront made front pages around the
world. During the World Trade Organization talks in November 1999, protesters flooded
Seattle’s streets, and among their targets was Starbucks, a symbol, to them, of free-market
capitalism run amok, another multinational out to blanket the earth. Amid the crowds of
protesters and riot police were black-masked anarchists who trashed the store, leaving its
windows smashed and its tasteful green-and-white decor smelling of tear gas instead of
espresso. Says an angry Schultz: “It’s hurtful. I think people are ill-informed. It’s very
difficult to protest against a can of Coke, a bottle of Pepsi, or a can of Folgers. Starbucks is
both this ubiquitous brand and a place where you can go and break a window. You can’t
break a can of Coke.”
The store was quickly repaired, and the protesters scattered to other cities. Yet cup by cup,
Starbucks really is caffeinating the world, its green-and-white emblem beckoning to
consumers on three continents. In 1999, Starbucks Corp. had 281 stores abroad. Today, it
has about 5,500—and it’s still in the early stages of a plan to colonize the globe. If the
protesters were wrong in their tactics, they weren’t wrong about Starbucks’ ambitions. They
were just early.
The story of how Schultz & Co. transformed a pedestrian com-modity into an upscale
consumer accessory has a fairy-tale quality. Starbucks grew from 17 coffee shops in Seattle 15
years ago to over 16,000 outlets in 50 countries. Sales have climbed an average of 20 percent
annually since the company went public, peaking at $10.4 billion in 2008 before falling to
$9.8 billion in 2009. Profits bounded ahead an average of 30 percent per year through 2007
peaking at $673, then dropping to $582 billion and $494 billion in 2008 and 2009,
respectively. The firm closed 475 stores in the U.S. in 2009 to reduce costs.
Still, the Starbucks name and image connect with millions of consumers around the globe.
Up until recently, it was one of the fastest-growing brands in annual BusinessWeek surveys
of the top 100 global brands. On Wall Street, Starbucks was one of the last great growth
stories. Its stock, including four splits, soared more than 2,200 percent over a decade,
surpassing Walmart, General Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total
returns. In 2006 the stock price peaked at over $40, but now has declined to $4.
Schultz’s team is hard-pressed to grind out new profits in a home market that is quickly
becoming saturated. Amazingly, with over 10,000 stores scattered across the United States
and Canada, there are still eight states in the United States with no Starbucks stores.
Frappuccino-free cities include Butte, Mon-tana, and Fargo, North Dakota. But big cities,
affluent suburbs, and shopping malls are full to the brim. In coffee-crazed Seattle, there is a
Starbucks outlet for every 9,400 people, and the com-pany considers that the upper limit of
coffee-shop saturation. In Manhattan’s 24 square miles, Starbucks has 124 cafés, with more
on the way. That’s one for every 12,000 people—meaning that there could be room for even
more stores. Given such concen-tration, it is likely to take annual same-store sales increases
of 10 percent or more if the company is going to match its historic overall sales growth. That,
as they might say at Starbucks, is a tall order to fill.
Indeed, the crowding of so many stores so close together has become a national joke,
eliciting quips such as this headline in The Onion, a satirical publication: “A New Starbucks
Opens in Rest-room of Existing Starbucks.” And even the company admits that while its
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practice of blanketing an area with stores helps achieve market dominance, it can cut sales at
existing outlets. “We prob-ably self-cannibalize our stores at a rate of 30 percent a year,”
Schultz says. Adds Lehman Brothers Inc. analyst Mitchell Speiser: “Starbucks is at a defining
point in its growth. It’s reaching a level that makes it harder and harder to grow, just due to
the law of large numbers.”
To duplicate the staggering returns of its first decade, Starbucks has no choice but to
export its concept aggressively. Indeed, some analysts gave Starbucks only two years at most
before it saturates the U.S. market. The chain now operates 5,507 international out-lets,
from Beijing to Bristol. That leaves plenty of room to grow. Most of its planned new stores
will be built overseas, representing a 35 percent increase in its foreign base. Most recently,
the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and even in far-off Jakarta.
Athens comes next. And within the next year, Starbucks plans to move into Mexico and
Puerto Rico. But global expansion poses huge risks for Starbucks. For one thing, it makes
less money on each overseas store because most of them are operated with local partners.
While that makes it easier to start up on foreign turf, it reduces the company’s share of the
profits to only 20 percent to 50 percent.
Moreover, Starbucks must cope with some predictable challenges of becoming a mature
company in the United States. After riding the wave of successful baby boomers through the
1990s, the company faces an ominously hostile reception from its future consumers, the
twenty- or thirty-something’s of Generation X. Not only are the activists among them turned
off by the power and image of the well-known brand, but many others say that Star-bucks’
latte-sipping sophisticates and piped-in Kenny G music are a real turnoff. They don’t feel
wanted in a place that sells designer coffee at $3 a cup.
Even the thirst of loyalists for high-price coffee cannot be taken for granted. Starbucks’
growth over the early part of the past de-cade coincided with a remarkable surge in the
economy. Consumer spending tanked in the downturn, and those $3 lattes were an easy
place for people on a budget to cut back.
Starbucks also faces slumping morale and employee burnout among its store managers and
its once-cheery army of baristas. Stock options for part-timers in the restaurant business
were a Starbucks innovation that once commanded awe and respect from its employees. But
now, though employees are still paid better than comparable workers elsewhere—about $7
per hour— many regard the job as just another fast-food gig. Dissatisfaction over odd hours
and low pay is affecting the quality of the normally sterling service and even the coffee itself,
say some customers and employees. Frustrated store managers among the company’s
roughly 470 California stores sued Starbucks in 2001 for allegedly refusing to pay legally
mandated overtime. Star-bucks settled the suit for $18 million, shaving $0.03 per share off
an otherwise strong second quarter. However, the heart of the complaint—feeling
overworked and underappreciated—doesn’t seem to be going away.
To be sure, Starbucks has a lot going for it as it confronts the challenge of regaining its
growth. Nearly free of debt, it fuels expansion with internal cash flow. And Starbucks can
maintain a tight grip on its image because stores are company-owned: There are no
franchisees to get sloppy about running things. By relying on mystique and word of mouth,
whether here or overseas, the company saves a bundle on marketing costs. Starbucks spends
just $30 million annually on advertising, or roughly 1 percent of revenues, usually just for
new flavors of coffee drinks in the summer and product launches, such as its new in-store
Web service. Most consumer companies its size shells out upwards of $300 million per year.
Moreover, Starbucks for the first time faces competition from large U.S. competitors such as
McDonald’s and their new McCafés.
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Schultz remains the heart and soul of the operation. Raised in a Brooklyn public-housing
project, he found his way to Starbucks, a tiny chain of Seattle coffee shops, as a marketing
executive in the early 1980s. The name came about when the original owners looked to
Seattle history for inspiration and chose the moniker of an old mining camp: Starbo. Further
refinement led to Starbucks, after the first mate in Moby Dick, which they felt evoked the
sea-faring romance of the early coffee traders (hence the mermaid logo). Schultz got the idea
for the modern Starbucks format while visiting a Milan coffee bar. He bought out his bosses
in 1987 and began expanding.
The company is still capable of designing and opening a store in 16 weeks or less and
recouping the initial investment in three years. The stores may be oases of tranquility, but
management’s expansion tactics are something else. Take what critics call its “predatory real
estate” strategy—paying more than market-rate rents to keep competitors out of a location.
David C. Schomer, owner of Espresso Vivace in Seattle’s hip Capitol Hill neighborhood, says
Starbucks approached his landlord and offered to pay nearly double the rate to put a coffee
shop in the same building. The landlord stuck with Schomer, who says: “It’s a little
disconcerting to know that someone is willing to pay twice the going rate.” Another time,
Starbucks and Tully’s Coffee Corp., a Seattle-based coffee chain, were competing for a space
in the city. Starbucks got the lease but vacated the premises before the term was up. Still,
rather than let Tully’s get the space, Starbucks decided to pay the rent on the empty store so
its competitor could not move in. Schultz makes no apologies for the hardball tactics. “The
real estate business in America is a very, very tough game,” he says. “It’s not for the faint of
heart.”
Still, the company’s strategy could backfire. Not only will neighborhood activists and local
businesses increasingly resent the tactics, but customers could also grow annoyed over
having fewer choices. Moreover, analysts contend that Starbucks can maintain about 15
percent square-footage growth in the United States— equivalent to 550 new stores—for only
about two more years. After that, it will have to depend on overseas growth to maintain an
annual 20 percent revenue growth.
Starbucks was hoping to make up much of that growth with more sales of food and other
noncoffee items but has stumbled somewhat. In the late 1990s, Schultz thought that offering
$8 sand-wiches, desserts, and CDs in his stores and selling packaged coffee in supermarkets
would significantly boost sales. The specialty business now accounts for about 16 percent of
sales, but growth has been less than expected.
What’s more important for the bottom line, though, is that Star-bucks has proven to be
highly innovative in the way it sells its main course: coffee. In 800 locations it has installed
automatic espresso machines to speed up service. And several years ago, it began offering
prepaid Starbucks cards, priced from $5 to $500, which clerk’s swipe through a reader to
deduct a sale. That, says the company, cuts transaction times in half. Starbucks has sold $70
million of the cards.
When Starbucks launched Starbucks Express, its boldest experiment yet, it blended java,
Web technology, and faster service. At about 60 stores in the Denver area, customers can
pre-order and prepay for beverages and pastries via phone or on the Star-bucks Express Web
site. They just make the call or click the mouse before arriving at the store, and their
beverage will be waiting—with their name printed on the cup. The company decided in 2003
that the innovation had not succeeded and eliminated the service.
And Starbucks continues to try other fundamental store changes. It announced expansion
of a high-speed wireless Inter-net service to about 1,200 Starbucks locations in North
America and Europe. Partners in the project—which Starbucks calls the world’s largest Wi-Fi
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network—include Mobile International, a wireless subsidiary of Deutsche Telekom, and

Hewlett-Packard. Customers sit in a store and check e-mail, surf the Web, or down-load
multimedia presentations without looking for connections or tripping over cords. They start
with 24 hours of free wireless broadband before choosing from a variety of monthly
subscription plans.
Starbucks executives hope such innovations will help surmount their toughest challenge in
the home market: attracting the next generation of customers. Younger coffee drinkers
already feel un-comfortable in the stores. The company knows that because it once had a
group of twenty something hypnotized for a market study. When their defenses were down,
out came the bad news. “They either can’t afford to buy coffee at Starbucks, or the only peers
they see are those working behind the counter,” says Mark Barden, who conducted the
research for the Hal Riney & Partners ad agency (now part of Public’s Worldwide) in San
Francisco. One of the re-curring themes the hypnosis brought out was a sense that “people
like me aren’t welcome here except to serve the yuppies,” he says. Then there are those who
just find the whole Starbucks scene a bit pretentious. Katie Kelleher, 22, a Chicago paralegal,
is put off by Starbucks’ Italian terminology of grande and venti for coffee sizes. She goes to
Dunkin’ Donuts, saying: “Small, medium, and large is fine for me.”
As it expands, Starbucks faces another big risk: that of be-coming a far less special place
for its employees. For a com-pany modeled around enthusiastic service, that could have dire
consequences for both image and sales. During its growth spurt of the mid- to late-1990s,
Starbucks had the lowest employee turnover rate of any restaurant or fast-food company,
largely thanks to its then unheard-of policy of giving health insurance and modest stock
options to part-timers making barely more than minimum wage.
Such perks are no longer enough to keep all the workers happy. Starbucks’ pay doesn’t
come close to matching the work-load it requires, complain some staff. Says Carrie Shay, a
former store manager in West Hollywood, California: “If I were making a decent living, I’d
still be there.” Shay, one of the plaintiffs in the suit against the company, says she earned
$32,000 a year to run a store with 10 to 15 part-time employees. She hired employees,
managed their schedules, and monitored the store’s weekly profit-and-loss statement. But
she was also expected to put in significant time behind the counter and had to sign an
affidavit pledging to work up to 20 hours of overtime a week without extra pay—a
requirement the company has dropped since the settlement.
For sure, employee discontent is far from the image Starbucks wants to project of relaxed
workers cheerfully making cappuccinos. But perhaps it is inevitable. The business model
calls for lots of low-wage workers. And the more people who are hired as Starbucks expands,
the less they are apt to feel connected to the original mission of high service—bantering with
customers and treating them like family. Robert J. Thompson, a professor of popular culture
at Syracuse University, says of Starbucks: “It’s turning out to be one of the great 21st century
American success stories— complete with all the ambiguities.”
Overseas, though, the whole Starbucks package seems new and, to many young people,
still very cool. In Vienna, where Starbucks had a gala opening for its first Austrian store,
Helmut Spudich, a business editor for the paper Der Standard, predicted that Starbucks
would attract a younger crowd than the established cafés. “The coffeehouses in Vienna are
nice, but they are old. Star-bucks is considered hip,” he says.
But if Starbucks can count on its youth appeal to win a welcome in new markets, such
enthusiasm cannot be counted on indefinitely. In Japan, the company beat even its own
bullish expectations, growing to 875 stores after opening its first in Tokyo in 1996. Affluent
young Japanese women like Anna Kato, a 22-year-old Toyota Motor Corp. worker, loved the
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place. “I don’t care if it costs more, as long as it tastes sweet,” she says, sitting in the world’s
busiest Starbucks, in Tokyo’s Shibuya district. Yet same-store sales growth has fallen in
Japan, Starbucks’ top foreign market, as rivals offer similar fare. Meanwhile in England,
Starbucks’ second-biggest overseas market, with over 400 stores, imitators are popping up
left and right to steal market share.
Entering other big markets may be tougher yet. The French seem to be ready for
Starbucks’ sweeter taste, says Philippe Bloch, cofounder of Columbus Cafe, a Starbucks-like
chain. But he wonders if the company can profitably cope with France’s arcane regulations
and generous labor benefits. And in Italy, the epicenter of European coffee culture, the
notion that the locals will abandon their own 200,000 coffee bars en masse for Starbucks
strikes many as ludicrous. For one, Italian coffee bars prosper by serving food as well as
coffee, an area where Starbucks still struggles. Also, Italian coffee is cheaper than U.S. java
and, says Italian purists, much better. Americans pay about $1.50 for an espresso. In
northern Italy, the price is 67 cents; in the south, just 55 cents. Schultz insists that Starbucks
will eventually come to Italy. It’ll have a lot to prove when it does. Carlo Petrini, founder of
the anti-globalization movement Slow Food, sniffs that Starbucks’ “substances served in
Styrofoam” won’t cut it. The cups are paper, of course. But the skepticism is real.
As Starbucks spreads out, Schultz will have to be increasingly sensitive to those cultural
challenges. For instance, he flew to Israel several years ago to meet with then Foreign
Secretary Shimon Peres and other Israeli officials to discuss the Middle East crisis. He won’t
divulge the nature of his discussions. But subsequently, at a Seattle synagogue, Schultz let
the Palestinians have it. With Starbucks outlets already in Kuwait, Lebanon, Oman, Qatar,
and Saudi Arabia, he created a mild uproar among Palestinian supporters. Schultz quickly
backpedaled, saying that his words were taken out of context and asserting that he is “pro-
peace” for both sides.
There are plenty more minefields ahead. So far, the Seattle coffee company has compiled
an envious record of growth. But the giddy buzz of that initial expansion is wearing off. Now,
Starbucks is waking up to the grande challenges faced by any corporation bent on becoming
a global powerhouse.
In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded
its business in Japan, beyond cafés and into convenience stores, with a line of chilled coffee
in plastic cups. The move gives the Seattle-based company a chance to grab a chunk of
Japan’s $10 billion market for coffee sold in cans, bottles, or vending machines rather than
made-to-order at cafés. It is a lucrative but fiercely competitive sector, but Starbucks, which
has become a household name since opening its first Japanese store, is betting on the power
of its brand to propel sales of the new drinks.
Starbucks is working with Japanese beverage maker and distributor Suntory Ltd. The
“Discoveries” and “Doubleshot” lines are the company’s first forays into the ready-to-drink
market out-side North America, where it sells a line of bottled and canned coffee. It also
underscores Starbucks’ determination to expand its presence in Asia by catering to local
tastes. For instance, the new product comes in two variations—espresso and latte—that are
less sweet than their U.S. counterparts, as the coffee maker developed them to suit Asian
palates. Starbucks officials said they hope to establish their product as the premium chilled
cup brand, which, at 210 yen ($1.87), will be priced at the upper end of the category.
Starbucks faces steep competition. Japan’s “chilled cup” market is teeming with rival
products, including Starbucks lookalikes. One of the most popular brands, called Mt.
Rainier, is emblazoned with a green circle logo that closely resembles that of Starbucks.
Convenience stores also are packed with canned coffee drinks, including Coca-Cola Co.’s
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Georgia brand and brews with extra caffeine or made with gourmet coffee beans.
Schultz declined to speculate on exactly how much coffee Starbucks might sell through
Japan’s convenience stores. “We wouldn’t be doing this if it wasn’t important both
strategically and economically,” he said.
The company has no immediate plans to introduce the beverage in the United States,
though it has in the past brought home products launched in Asia. A green tea frappuccino,
first launched in Asia, was later introduced in the United States and Canada, where company
officials say it was well received.
Starbucks has done well in Japan, although the road hasn’t al-ways been smooth. After
cutting the ribbon on its first Japan store in 1996, the company began opening stores at a
furious pace. New shops attracted large crowds, but the effect wore off as the market became
saturated. The company returned to profitability, and net profits jumped more than sixfold
to 3.6 billion yen in 2007, but declined again to 2.7 billion yen in 2009.
Most recently in Japan, the firm has successfully developed a broader menu for its stores,
including customized products— smaller sandwiches and less-sweet desserts. The strategy
increased same store sales and overall profits. The firm also added 175 new stores since
2006, including some drive-through service. But McDonald’s also is attacking the Japanese
market with the introduction of its McCafé coffee shops.

Questions:
1. Identify the controllable and uncontrollable elements that Starbucks has encountered
in entering global markets.
2. What are the major sources of risk facing the company? Discuss potential solutions?
3. Critique Starbucks’ overall corporate strategy.
4. How might Starbucks improve profitability in Japan?
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SUMMARY
Starbucks is one of the largest chains of coffee shops in the world. There are
many topics that arise throughout the case with Starbucks Corporation. Starbucks
Coffee is located worldwide and there are many different ways to look at this
situation. The company offers a unique range of coffee, lattes, espressos, and café
style drinks. The company intended to reach a specific target audience, but has ended
up in many different markets and has been growing rapidly. Starbucks has greatly
used the “youth appeal” strategy to gain entrance into new markets. However, such
enthusiasm cannot be counted on indefinitely; other strategies are always in the
works. Over time Starbucks has been able to acquire a solid brand reputation and has
a world renowned company logo. There have been some distinguished controllable
and uncontrollable elements Starbucks has encountered when entering global
markets. The strategies of any company’s goals are vital to its success. This is one
area Starbucks has excelled in, just as McDonald’s has in recent years. Starbucks has
paralleled its branding with the actions found at any Starbucks across the world.
They have an excellent company vision, which they stick to, which in turn assists
their brand image. Starbucks’ image has been achieved not only through this and
their massive global entrance, but through their ability to provide honest quality
service. In recent years there was a time that Starbucks saw the opportunity to go
global and jumped on it.
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Answer No. 1
The Controllable Elements are:
1. Product: Starbucks provides a variety of products of very high quality. Their
product includes coffee, tea, pastries, Frappuccino beverages and smoothies.
2. Price: Starbucks Charges $1.5 for an espresso in USA, in northern Italy the
price is 67 cents and in south just 55 cents.
3. Channel of Distribution: Starbucks channel of distribution is very strong as it
is the largest coffeehouse company in the world, with 20,891 stores in 62
countries, including 13,279 in the United States, 1,324 in Canada, 989 in
Japan, 851 in China and 806 in the United Kingdom.
4. Promotion: Starbucks promote their coffee by relying on mystique and word
of mouth, the company saves a bundle on marketing costs. Starbucks spends
just $30 million annually on advertising, or roughly 1% of revenues.
5. Research: Starbucks tries to bring innovation or new things in its products or
services through research.

The Uncontrollable Elements are:

1. Culture: Starbucks faces difficulty because of cultural differences. For instance
once Schultz caused uproar among Palestine supports.
2. Competition: Starbucks faced competition in Italy, France, Japan and in many
other foreign countries.
3. Economic Conditions: The economic conditions are not the same in all
countries. So Starbucks makes its strategy accordingly to each country’s
economic conditions.

Answer No. 2
The major sources of risk that Starbucks faced:
1. The home market is becoming saturated.
2. The company is facing an ominously hostile reception from its future
consumers, the twenty or thirty something of generation X.
3. Starbucks is becoming a far less special place for its employees.
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The potential solutions could be:

1. As Starbucks is facing fierce competition, they need be better than the
competitors. They can lower their prices, better products and services, bring
innovation in their operation or they can incase their product line.
2. There needs to be a comprehensive research and bring a new strategy for its
generation X consumers.
3. They need to restructure their employees’ working schedule, increase their
salary and other benefits to ensure employee satisfaction.

Answer No. 3
Critique of Starbucks overall corporate strategy:
1. Starbucks is making less money on each overseas store because most of them
are operated with local partners.
2. The workers are not paid well for overtime or over duty.
3. Its pricing policy is not suitable for generation X.
4. Starbucks only spends $30 million annually on advertising, or roughly 1% of
its revenues.
5. There are eight states in U.S. with no Starbucks store.

Answer No. 4
Japan has a very competitive and lucrative market. To improve their profitability in
Japan, they need to position their products and services matching the culture of
Japan. They can lower their products prices, design its stores using Japanese
symbols or designs, free Wi-Fi and other technological facilities and they also should
increase their advertising budget to stay in the competition.