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Starbucks Strategic Plan

Denise Ellis

STR 581

March 3, 2014

Kenneth Kobus
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Table of Contents

I. Executive Summary 3
II. Starbucks Coffee 3-4
A. Background
B. Mission
C. Vision
D. Values
III. External & Internal Environmental Scan 4-5
D. Strengths
E. Weaknesses
F. Opportunities
G. Threats
IV. Strategy..……………………………………………………………………………5-6
V. Implementation…………………………………………………………………...6-11
VI. Appendices………………………………………………………………………12-14
VII. References…………………………………………………………………………...15
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Executive Summary

Strategic goals are designed to assist an organization with the implementation of its

growth through a strategic plan. The strategic plan outlines the various steps or processes needed

to reach the intended goals of the company to experience profits. Starbucks has designed a plan

to implement its company values by focusing on customer value and satisfaction.

Starbucks is the largest coffee chain in the world and has many stores all over the world.

The company provides high quality products to its customers and provides them with an

experience when visiting the stores that is different from all of its competitors. The company

continues to strive to meet the needs of the customers both in the stores and at home; however,

the company is ready to increase its global expansion with hopes of continuing to maintain its

competitive advantage.

Background

Starbucks began in 1971 when it opened its first store in Seattle, Washington. With only a

single store, the company worked hard to be different and to make a connection with its

customers. Ten years later the current CEO Howard Schultz visited Starbucks for the first time

and enjoyed what he experienced. In 1987, after many years of exploring coffeehouses, he

purchased Starbucks with the help of investors. Today, the company is the largest coffeehouse

chain in the world holds about 33% of the market share in the United States for coffee.

Starbucks Mission & Vision Statement

The organization works hard to meet the needs of its current customers and find ways to

attract new customers by implementing methods to know the customer’s needs. Starbucks uses

the foundation of the company to work towards this goal by the use of its mission statement

which says, “Our mission to inspire and nurture the human spirit – one person, one cup, and one
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neighborhood at a time” (“Our Heritage”, 2014).

Values

Starbucks set out to be different and value customer connection as well as providing

quality products. The major values for the company are quality, connection, diversity,

community service, eco-friendliness, and Third World Aid. The company uses these values both

internally and externally to connect with employees and customers by meeting the needs of each

and working to meet the needs of others in other global regions.

Key Leadership

The key leadership team of Starbucks consists of Howard Schultz, Troy Alstead, Scott

Maw, Adam Brotman, and Matt Ryan. These leaders work with group presidents Cliff Burrows

and John Culver to create a more global positioning for each region. With the new strategic

alignment of leadership, Howard Schultz will be free to practice more innovative tactics while

the others handle more of the operational necessities of the company.

External Environmental Scan

The factors that are beyond a company’s control are a part of the remote environment.

The economy has a great effect on the success or failure of Starbucks and any other coffee

companies in the industry. The business can be affected by any change in the economy including

inflation, economic growth, or unemployment.

The cost of coffee beans varies greatly on the conditions of the weather as well as the

need. The growth of the economy will typically result in growth of spending of consumers and

yields positive results for companies such as Starbucks. However, when the unemployment rates

rise and the economy is not stable, consumers tend to cut back on spending which results in

lower sales for many retail companies. A company should know its strengths and weaknesses and
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be prepared for changes. The company should analyze the position of the business as a result of

changes and having the ability to adjust is the key to its success.

Internal Environmental Scan

Internal strengths and weaknesses

The internal strengths of Starbucks are its menu options, perks for employees, satisfaction

of employees, the rewards for customers, the environment of the stores, the performance of its

stock, and of course the coffee. Starbucks is considered to be the number one coffeehouse in the

world and is sound financially according to its records. The company has managed to make the

“experience” for its customers with the atmosphere including friendly employees, music, and the

coffee.

Internal weaknesses are inevitable in any organization, and this includes those in the

coffee industry. One of the main weaknesses the company faces is its product prices, publicity,

and the vulnerability of profits relying heavily on the price of coffee beans. This puts the

company into an extremely vulnerable state with the commodity depending weather conditions

and funds to determine its availability. Both internal and external factors are considered when

determining the strategy that is best for the organization.

Strategy

Starbucks is currently a well-established company and has made many strides be

innovative while attracting new customers and maintaining its current customer base. The

company has worked hard to develop value discipline within its business strategies focusing on

the customer values. The company should keep its current value system as this caters to the

customer and it what drives the business. Although the company has set itself apart of the

competition by fulfilling its mission statement of “to inspire and nurture the human spirit – one
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person, one cup and one neighborhood at a time” (“Our Heritage”, 2014, p. 1), the company

needs to focus on creating new products.

The company can also work to develop new products for use at home as well as

implement a system to increase its exposure to retail centers. The new machines Starbucks has

created for at home use have had a good response from customers; however, pricing of these as

well as the drinks seem to be one of the biggest issues for customers. Starbucks should consider

finding a way to decrease pricing to attract more customers without losing the quality of products

offered as long as it aligns with the company’s strategic plan.

Implementation Plan

Implementation plan strategies are designed to assist an organization in achieving its

intended goals. The most important factor in the process is the implementation of the new

strategic plan or changes to the current plan. According to Pearce and Robinson (2013), “The

implementation process is initiated through the creation of action plans to detail tactics and

actions to be taken that initiate long-term strategies through the work of the organization” (p.

317). The process includes an analysis of the structure of the organization to decide how to

implement the plan effectively and efficiently to experience success.

Objectives

The goals or objectives of a company “are usually accompanied by action plans, which

enhance these objectives in three ways” (Pearce & Robinson, 2013, p. 288). The plan will

identify the functional tactics needed in the near future to build a competitive advantage, outline

the time frame for accomplishing the goal, and outline the responsibility of the parties for each

task. The objectives for Starbucks are to:

 Increase customer base

 Innovation increase
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 Find ways to decrease costs and maintain quality

 Increase the number of stores

Functional tactics

“Functional tactics translate thought (grand strategy) into action designed to accomplish

specific short-term objectives. Every value chain activity in a company executes functional

tactics that support the business’s strategy and help accomplish strategic objectives” (Pearce &

Robinson, 2013, p. 291).

Financials

Starbucks is currently present in over 62 countries and continues to offer a higher-quality

beverage and products to its customers in comparison to its competitors. The company that

started with only beverages now offers breakfast and lunch sandwiches, salads, oatmeal, cakes,

muffins, and many other healthy options that are not offered by some of its competitors. In 2012

during the second quarter as a result of careful spending and planning the company was able to

offer shares for $.40 to its shareholders. The company has already moved into the global market

and according to Howard Schultz, CEO, (2012) the company hopes to expand to 1500 stores in

China alone by 2015 (“Starbucks CEO discusses Q2 2012 results” , p. 5).

In the second quarter earnings conference call CEO Howard Schultz stated, “We believe

that we have a strong competitive advantage and that we can use our stores as the distribution

system to build trial and awareness that will help create excitement and adoption of Verismo in

China” (“Starbucks CEO discusses Q2 2012 results”, p. 9).

Action items

The action items for Starbucks all surround one important goal and that is to know the

customer’s desires while continue to make a profit. The goals of the company’s success focus on

the value system as this caters to the customer and it what drives the business. Successful
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implementation presents the ability to have adequate resources, staff, and continued innovations

to drive the company’s success. The staff is essential to make decisions and carry out the agenda

that aligns with the company’s strategic plan.

The research and development team (R&D) will have two teams that will work on tasks:

the development of new product offerings in current stores and new products for at home use.

Starbucks should consider finding a way to decrease prices to attract more customers without

losing the quality of products offered as long as it aligns with the company’s strategic plan.

Milestones and a deadline

In 2013, Starbucks took the opportunity to look over the three years to reassess its

progress as a company. The market plan will be replaced with a new three year plan consisting of

customer surveys on a regular basis; typically monthly. The company will increase its marketing

budget to coincide with its global expansion. The assessment will determine what changes are

needed to better align with the company’s strategic plan and can be accomplished in the next

three years.

After the assessment of the preceding marketing plan over a three year period, in

February 2014 Starbucks has reached two organizational milestones with the opening of its first

store in Southeast Asia and the opening of the 100th store in Singapore. According to Business

Wire (2014), “The company is on track to expand its footprint by adding approximately 750

stores across Starbucks China and Asia Pacific region this year. Southeast Asia will play a

significant role in this growth, driven both within existing markets – including Singapore,

Vietnam, Malaysia, Indonesia, Thailand and the Philippines – as well as new markets such as

Brunei” (p. 1).

Tasks and task ownership

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The tasks will be assigned to the prospective persons to complete the goals in the allotted

time frame. The motivation of employees comes through the process of providing task ownership

by providing responsibility for each person to handle his or her roles and responsibilities. The

employees qualified in specialized areas will convey any information to other necessary parties

to work towards a common goal.

Resource allocation

The resources the company uses will be only used when needed to equip employees with

the necessary tools and resources to be productive. Marketing will be strategically used to attract

new employees and to attract the attention of current customers. The employees will have access

to the all the sources needed within the company’s budget.

Financials

The key success factors for Starbucks are the products offered, the atmosphere of its

locations, and the convenience. The availability of finances is important when implementing a

strategy. Based on the financials of Starbucks, there has been a steady gain of profits and assets

in both the Cash Flow Statement and Balance Sheet for Starbucks in Appendix B and C. When

examining its financials, Starbucks has to consider the change in sales during peak and slower

seasons to calculate the break-even point.

Typically the sales increase during the holiday season which results in an increase in

costs for the company during peak seasons in November and December. After the first of the

year, there is an increase in new customers as a result of one of the sales tactics previously

implemented with the sales of gift cards. Gift card sales typically rise during holiday seasons

when customers use them as gifts for others. As a result, the company typically gains new
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customers who may have never tried Starbucks products.

The following are the total expenses for the last three years (2011-2013) for Starbucks:

180

160

140

120

100

Sum of 2011
80
Sum of 2012
Sum of 2013
60

40

20

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Starbucks Expenses (in millions)

According to the financial records for Starbucks, the average forecast for revenue over the last

three years was 10.24 billion. The average cup of coffee costs $2.65 and take the average

revenue divided by the average cost and this will show that for the last three year Starbucks sold

approximately 3.86 billion cups of coffee. The cost per drink for Starbucks is 88 cents per cup

found by using the variable cost for the company is 339.8 million and dividing this by the cups

sold. The average price of a drink is found to be approximately $2.65 minus Starbuck’s costs

shows a profit per cup of $1.77.

The company has an approximate fixed cost of 1459.4 million and this amount is divided
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by the profit and we get the number of cups Starbucks needs to sale to break even. The break-

even point for Starbucks can be calculated using the following sample equations:

1459.4/1.77 = 824.51

824.51cups X $2.65 per drink = $2,184.95

The break-even point can be calculated by using the revenue, fixed costs, variable costs, and

number of cups sold. The graph shows how the information can be used to find the break-even

point for Starbucks with reference to its coffee sales (See Appendix A).
 Conclusion

The strategy that Starbucks has in place will present the opportunity for the company “to

inspire and nurture the human spirit – one person, one cup and one neighborhood at a time”.

Starbucks will continue to make improvements with its current value disciplines focusing on

customer values and needs. In this industry operational excellence is essential in determining the

outcome and in implementing plans that will support its strategic goals.

Starbucks can use its break-even point to explore options to lower pricing and attract new

customers as well as increase current customer spending. The combination of product leadership,

customer intimacy, and operational excellence within Starbucks along with its determination to

meet the needs of customers makes this a company worth the investment and that will experience

continued growth.

Appendix A

Break-Even Chart
Appendix B
© Starbucks Corporation 2013 Form 10-K

Appendix C
© Starbucks Corporation 2013 Form 10-K

References
Our Heritage. (n.d.). Starbucks Coffee Company. Retrieved February 8, 2014, from

http://www.starbucks.com/about-us/our-heritage

Pearce, J. A., & Robinson, Jr., R. B. (2013). Strategic management: planning for domestic &

global competition (13th ed.). New York: McGraw-Hill Higher Education ;NY.

Risk management. (2014). Retrieved February 19, 2014 from http://www.businesswire.com

/news/home/20140214005403/en/Starbucks-Southeast-Asia-Growth-Momentum-

Continues-Significant#.UwpS-4VKQz0

Starbucks' CEO Discusses Q2 2012 Results - Earnings Call Transcript. (n.d.). Yahoo Finance.

Retrieved February 8, 2014, from http://finance.yahoo.com/news/starbucks-ceo-

discusses-q2-2012-023006822.html

Starbucks fiscal 2013 annual report. (2013). Retrieved February 18, 2014 from

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual