Customer Service

Starbucks employees are referred to as “partners.” As of 2002, Starbucks

employed 60,000 partners worldwide, 50,000 of those in the United States. From
the beginning when Howard Schultz took

Over Starbucks, he believed, “Partner satisfaction leads to customer

satisfaction,” (Moon).

Competitive Pricing

Starbucks brand coffee sold in grocery stores are similar to these prices found in
the cafes.

Market Forecast (Moon)

Over the next few years, an estimate for the U.S. retail coffee market expects
specialty coffee to have a compound annual growth rate (CAGR) between 9%-
10%.

 Starbucks was also estimated in 2002 to grow at a CAGR of about 20% top-line
revenue growth.
 As of 2002, coffee consumption had risen with more than half of the population
(about 109 million people) drinking coffee every day, and an additional 52 million
drinking coffee on occasion.

PEST Analysis

1. Political Influences
2. Relationships between coffee producing nations and US
3. State & Local government controls
4. Economic Influences
5. Constant demand for food and beverages
6. Changes in disposable income could influence purchase levels
7. Social Influences
8. Consumer preferences could shift from coffee to other beverages
9. Technological Influences
 10.Use of technology can  improve operational efficiencies

Market Growth

 Reports show in 2002, the number of specialty coffee drinkers has become the
market’s biggest growth.
 An estimated one-third of all U.S. coffee consumption takes place outside of the
home and in places such as offices, restaurants, and coffee shops (Moon).

SWOT Analysis

Strengths

 The company is good at taking advantage of opportunities.

 Starbucks is very profitable and has a strong financial base, therefore allowing the
company to undertake new business ventures.

 Revenue increased to $5294.2 million in 2004, a 29.9% increase from 2003 (Data
Monitor)
 Profits increased to $610 million in 2004, a 43.7% increase from 2003.
 Net earnings increased 46% (SWOT).

 The company is internationally recognized and has a global presence.

 Their reputation is one of fine products and services.

 Almost 9,000 cafes in almost 40 countries (SWOT)

 Widespread brand recognition, which in turn becomes brand Preference, and ideally
eventually brand loyalty.

 Strong customer base

Clusters company units

 Expands business with the continuing growth of the coffee market, especially in
areas where the company is already well established, and groups stores in an area,
therefore able to dominate the region.

 Leads to considerable financial reward without suffering from cannibalism (Data

Monitor).
 Focus on opening stores that have convenient access for pedestrian and drivers
 Helps the company capture an increasing share of the coffee market

Weaknesses

 Reliance on beverage innovation

 Vulnerable to the possibility that their innovation may falter over time
 Company growth is mostly driven by beverage innovation.
 If U.S. store growth decreases, stock is lowered in value.
 Diminishing return from beverage innovation would have an adverse effect (Data
Monitor).

 More than 75% of the company’s stores are in the USA (Data Monitor).

 May need to look for an assortment of countries in which to open more shops in
order to spread business risk
 85% of revenue is from its domestic US market (Data Monitor).
 Has high international brand recognition and should look to generate a greater
proportion of revenue from outside the USA.
 Would suffer greatly if U.S. stores underperformed because of economic conditions
or increased levels of competition

 Dependent on the retail of coffee, this could make them slow to diversify into other
divisions if the need should arise.

 Employee efficiency is poor.

 § Lower revenue per employee ($71,544—fiscal 2004) compared to the

    Industry average ($110,841) (Data Monitor)

 Lower income per employee ($5,294) compared to the industry average ($9,500)
(Data Monitor).

 Lower Return on Equity than peers

 Company’s 5 year average ROE (13.65%) have been lower than the

Industry average (15.09%)  (Data Monitor).

 Need to effectively manage its finances to ensure that returns are at par of higher
than industry average.

 Problems in some international operations

 Problems of expansion: A number of openings are failing to be

 Successful.

 Japanese operations: The Company has experienced some same-stores

sluggishness.
 Closures of stores in Israel and Tel Aviv: Hurts growth prospects in the region