Starbucks International Operations

Sanjib Dutta and K. Subhadra Case Abstract This is a case study of a company called Starbucks Corp. In March 2003, the company successfully featured in the list of Fortune 500 companies. Starbucks started as a coffee bean retailing store. A man named Schultz has changed Starbucks from a small retailing store to a big company and well-known coffee restaurant all over the world. The early strategy used by Schultz was to open as many Starbucks stores beginning with the expansion to Chicago, Los Angeles and other major cities in U.S. By 1993, there were around 100 Starbucks store all over U.S. and continued to increased to 145 in 1994. The strategy adopted was to reduce the distribution cost as well as waiting period for customers in its stores. Starbucks also became the first privately owned company that offers employee stock option and it was listed on the New York Stock Exchange in 1992 at a price of $17 per share. Starbucks can also be considered as a dynamic company. The company also has strategic alliances such as Canadian Airlines, United Air Lines, Starwood Hotels and Barnes & Nobles in order to serve Starbucks coffee. Internationally, Starbucks managed to enter Asia Pacific market when it opened its first store in Japan and subsequently to other Asian Region. Its efforts not just stop there. Starbucks also penetrated European market when it opened the first store in England in 1998 and soon expanded its presence to Switzerland, Germany and Greece. Starbucks also went for licensing in the Middle East. Starbucks used their ability to adapt to local cultures to strengthen their presence in the region the have entered. In 2005, because of the successful of existing stores in international market, Starbucks had announced that by 2005, they would increase the number of international stores up to 10,000. But some analysts pointed out that Starbucks might not succeed in international markets.

It was soon been proved when many problems occurred in its international markets. Mostly local political problems like what had happened in Iraq and the boycott of US goods of services due to Shultz closeness to Jewish Community. There are also problem in economics situation, for example economic recessions in Switzerland, Germany and Japan in early 2000. They also faced stiff competition from well established local players in Europe, and also sales drop problem in Japan. But whatever the problem was, Starbucks has succeed to put its name in the international market and financially strong because the company relatively debt free and had around $300 million in free cash flows.

1.

What are the strenghs and weaknesses of Starbucks International?

Strengths
1.

Entered a joint venture with Sazaby Inc. a leading Japanese teashop and interior-goods retailer. No smoking principle. Ability to adapt to local culture. Self-service mode of operation. Debt free and $300 million in free cash flows. Alliance with various players. Innovation in products.

2. 3. 4. 5. 6. 7.

Weaknesses
1. 2. 3.

Did not like the taste of Starbucks coffee. Complex joint ventures and licensing agreements. Invest huge amount in imparting training to the employees and promoting products.

4.

Lack of trained workforce and suitable real estates for its stores. What are the opportunities and threats facing Starbucks International?

2.

Opportunities
1.

Eagerness among the younger generation in Asia Pacific to imitate Western lifestyle. Sazabys knowledge about Japanese coffee drinking habits. Strong coffee drinking culture in Europe. The taste had gone awry in Europe.

2. 3. 4.

Threats 1. 2.
3. 4. 5.

Tough competition from sidewalk cafes in France, coffeehouses of Vienna and espresso bars of Italy Volatile political environment in the Middle East War on Iraq. Economic Recession in Switzerland, Germany and Japan. Stiff competition from well-established local players that offered specialty at lower prices.

3.

What are the strategic factors facing Starbucks International?

Internal Audit Internal Factor Analysis (IFAS) Matrix Weighted Score 1.5 Comments No smoking principle and self service mode of operation Use advantage of alliance Able to adapt to local culture Debt free and $300 millions free cash flow Good Good but deteriorating Very complex Over expand Lack of training

Internal Strategic Factors Strenghs 1. Special concept of service 2. Alliance with various players. 3. Business adaptation 4. Financial position 5. Product innovation Weaknesses 1. Taste of cofee 2. Joint Venture and licensing 3. Training and promoting expenditure 4. Workforce competency Total Scores

Weight 0.5

Rating 3

0.10 0.05 0.15 0.15 0.20 0.10 0.15 0.05 1.00

3 4 4 3 3 3 2 2

0.3 0.2 0.6 0.45 0.6 0.3 0.3 0.1 4.35

External Audit External Factor Analysis (EFAS) Matrix External Strategic Factors Opportunities 1. Current trends in Asia Pacific Weight 0.15 Rating 4 Weighted Score 0.60 Comments Younger generation trying to imitate western lifestyle Sazabys knowledge Strong coffee drinking culture Had gone awry Tough competition Volatile Recession in Switzerland, Germany and Japan From well established local players

2. Japanese coffee drinking habits 3. European market 4. Quality of coffee in Europe Threats 1. European competition 2. Political environment in Middle East 3. Economic situation in Europe.

0.10 0.15 0.10 0.15 0.10 0.10

4 2 1 2 4 4

0.6 0.3 0.1 0.3 0.4 0.4

4. Price competition Total Scores

0.15 1.00

0.3 3.0

TOWS Matrix Strengths S1 Special concept of service. S2 Alliance with various players S3 Business adaptation. S4 Financial position. S5 Product innovation. S-O Strategies Weaknesses W1 Taste of coffee. W2 Joint Venture and licensing. W3 Training and promoting expenditure. W4 Workforce competency. W-O Strategies W2O2 Simplify Joint Venture and licensing agreement with Sazabys. W1O4 Cooperate with European coffee maker to diversify taste of coffee. W-T Strategies

Internal Factors (IFAS)

External Factors (EFAS)

Opportunities

O1 Current trends in Asia S3,S4,O3 -Expand business Pacific. in other European countries. O2 Japanese coffee drinking habits. S3,S4,S5,O5 Expand and O3 European market. use product innovation in O4 Quality of coffee in Asia Pacific region. Europe. Threats T1 European competition T2 Political environment in Middle East. T3 Economic situation in Europe. T4 Price competition. S-T Strategies

S1,T1,T4 Find new W3T3 Tighten budget attraction and innovations expenditure on training and to win competition promotion S4T1 Take over small European local players.

Recommendations Strategy 1 Expand business in other European countries. Strategy 2 Expand and use product innovation in Asia Pacific region. Strategy 3 Simplify Joint Venture and licensing agreement with Sazabys. Strategy 4 Cooperate with European coffee maker to diversify taste of coffee. Strategy 5 Find new attraction and innovations to win competition Strategy 6 Take over small European local players. Strategy 7 Tighten budget expenditure on training and promotion

4.

Does Starbucks International have any core competencies? If yes, what are they? Yes, Starbucks International has core competencies as below:

i)

Human Resource strategy Company culture Employee as a partners The company is a respected employer that values its workforce Employee benefits coverage to permanent and part time employee

 Quality control training strategies- All employee attend a minimum training 24 on customers service skill, coffee knowledge and beverage making technique ii) Product

Well known as a global coffee brand

Reputation for consistent, high quality product and services Differentiating its coffee and coffee related product iii) Price Starbuck pricing its coffee competitively with the prevailing high end coffee price combination of price, features, high quality, good services iv) Location Put outlets in suburban markets and providing comfortable coffee house chains

5.

Does Starbucks International have a distinctive competency? If yes, what it is? Yes, starbucks distinctive competency is store ambience and innovative coffee drinks. Starbucks giving to customers not just a good cup of fresh coffee but also give passion for the soul of people, quality products excellent customers services and the experiences and understanding of the culture of coffee

6.

What are the keys to success in Starbucks International? The keys to success in Starbucks International can be seen in the Mackenzies Seven Stars analysis below: Strategy Starbucks strategy is considerably aggressive, focusing on global expansion and market domination. Its tactics are to create a

culture that employees would be proud to work for, and quality products and services that keep customers retention. Its competitive strategy is to rapidly expand to a market and dominate it completely before moving on. In the process, it hopes that these rapid expansions would create a higher barrier to entry, discourage competitors from expanding, and eventually acquires weak competitors who wants to exit.

Structure -

The

organization

structure

at

Starbucks

has

no

formal

organization chart, and pushes to avoid being hierarchical. Hence, overlaps exist in divisions, such as between Marketing and Retail North America, resulting in many employees reporting to two division heads. This proves to be a flaw in the system, creating confusion and wasteful redundancy, is a potential area for improvement. Systems For quality control, Starbucks has a specialized process for roasting the perfect coffee bean. It is implemented with the roaster determining by sight, smell, hearing, and computer, if the beans are perfectly done. Additionally, the color of the beans is tested in an Agtron blood-cell analyzer. If the sample is deemed imperfect in any of these processes, the whole batch is discarded. Starbucks departmental systems are organized into functional and production divisions such as Supply Chain Operations, Human Resources, Accounting, etc... Starbucks employs approximately 15,000 individuals to operate its retail stores and regional offices, and 1,600 individuals to work on administrative, sales, real estate, direct response, roasting, and warehousing operations.

Style -

Management style at Starbucks is very laid-back and supportive, encouraging employees to think of themselves as partners in the business. Managers also support employees to make decisions that enhance customer satisfaction without requiring manager authorization. An example is if a customer is dissatisfied with the purchase, the employee is authorized to replace it right on the spot. Furthermore, management encourages employees to make suggestions to improve the business, and to share concerns with others through a public forum. These processes further transpire the notion that employees are valued by management, regardless of their position. Such supportive environment give rises to the companys low barista turnover rate of 60% as supposed 140% in the fast food industry.

Staff -

The demographics of Starbucks partners is comprised of 80% white, 85% college-educated, and average age being 26 years old. This says a lot about the working environment here, that young people who are educated and have the potential to work elsewhere chose instead to work at Starbucks. This implies a group of people who are contended and satisfied with the salary, benefits, and culture of the organization.

Shared Values- Schultzs vision and values for Starbucks has been transpired

Values effective across everyone in the organization. From valuing the customers and employees to being philanthropic, Starbucks has created a unifying culture. Example of this includes offering stock options unilaterally to all employees back when it was still a private company, providing employee benefits programs to full-time and part-time employees, or ensuring a job for the worker with AIDS or health insurance even if he leaves the organization. Furthermore, Starbucks also values its indirect

10

employees,

the

coffee

farmers

and

workers,

establishing

guidelines for minimum employment wage, living condition, and child labors. Thus this further reinforces the philanthropic image of the corporation and how concerned the corporation with the wellbeing of its employees. Thus, all these values ties back to Schultzs belief that happy employees are the key to competitiveness and growth. Skills To ensure qualified barista, roasters, and other employment positions, Starbucks offers at least 24hr employee training to all of its partners. This allows for experienced individuals who can represent the company well by providing quality service for the customer. Furthermore, Starbucks ensures quality through promoting coffee roaster from within the company. In fact, Schultz believes that Starbucks only sustainable advantage is the quality of its work force.

7.

What products does Starbucks International offer? Products offered by Starbucks International

Vanilla Bean Frappuccino Blended Crme - whip Vanilla Crme - no whip Vanilla Crme - whip Vanilla Latte White Chocolate Mocha - no whip White Chocolate Mocha - whip White Chocolate Mocha Frappuccino Blended Coffee - no whip White Chocolate Mocha Frappuccino Blended Coffee - whip White Chocolate Mocha Frappuccino Light Blended Coffee White Hot Chocolate - no whip White Hot Chocolate - whip Pumpkin Spice Latte - whip Steamed Apple Juice Strawberries & Crme Frappuccino Blended Crme - no whip Strawberries & Crme Frappuccino Blended Crme - whip
11

Syrup Flavored Latte Tazo Black Shaken Iced Tea Tazo Black Shaken Iced Tea Lemonade Tazo Chai Frappuccino Blended Crme - no whip Tazo Chai Frappuccino Blended Crme - whip Tazo Chai Iced Tea Latte Tazo Chai Tea Latte Tazo Green Shaken Iced Tea Tazo Green Shaken Iced Tea Lemonade Tazo Green Tea Frappuccino Blended Crme - no whip Tazo Green Tea Frappuccino Blended Crme - whip Tazo Green Tea Latte Tazo Passion Shaken Iced Tea Tazo Passion Shaken Iced Tea Lemonade Tazo Tea Vanilla Bean Frappuccino Blended Crme - no whip Iced White Chocolate Mocha - no whip Iced White Chocolate Mocha - whip Java Chip Frappuccino Blended Coffee - no whip Java Chip Frappuccino Blended Coffee - whip Java Chip Frappuccino Light Blended Coffee Milk Mocha Frappuccino Blended Coffee - no whip Mocha Frappuccino Blended Coffee - whip Mocha Frappuccino Light Blended Coffee Peppermint White Chocolate Mocha - whip Peppermint White Chocolate Mocha - no whip Pumpkin Spice Crme - no whip Pumpkin Spice Crme - whip Pumpkin Spice Frappuccino Blended Coffee - no whip Pumpkin Spice Frappuccino Blended Coffee - whip Pumpkin Spice Frappuccino Blended Crme - no whip Pumpkin Spice Frappuccino Blended Crme - whip Pumpkin Spice Frappuccino Blended Crme Pumpkin Spice Frappuccino Light Blended Coffee Pumpkin Spice Latte - no whip Honey Latte - whip Honey Latte - no whip Hot Chocolate - no whip Hot Chocolate - whip Iced Brewed Coffee Iced Caff Americano Iced Caff Latte

12

Iced Caff Mocha - whip Iced Caff Mocha - no whip Iced Caramel Macchiato Iced Honey Latte - whip Iced Honey Latte - no whip Iced Peppermint White Chocolate Mocha - whip Iced Peppermint White Chocolate Mocha - no whip Iced Pumpkin Spice Latte - no whip Iced Pumpkin Spice Latte - whip Iced Sugar-Free Syrup Flavored Latte Iced Syrup Flavored Latte Iced Tazo Green Tea Latte Iced Vanilla Latte Cinnamon Dolce Frappuccino Blended Coffee - whip Cinnamon Dolce Frappuccino Light Blended Coffee Cinnamon Dolce Latte - no whip Cinnamon Dolce Latte - whip Cinnamon Dolce Latte with Sugar-Free Syrup Coffee Frappuccino Blended Coffee Coffee Frappuccino Light Blended Coffee Coffee of the Week Decaf Coffee of the Week Double Chocolaty Chip Frappuccino Blended Crme - no whip Double Chocolaty Chip Frappuccino Blended Crme - whip Espresso Frappuccino Blended Coffee Espresso Frappuccino Light Blended Coffee Honey Crme - whip Honey Crme - no whip Honey Frappuccino Blended Coffee - whip Honey Frappuccino Blended Coffee - no whip Honey Frappuccino Blended Crme - whip Honey Frappuccino Blended Crme - no whip Honey Frappuccino Light Blended Coffee - no whip Apple Juice Caff Americano Caff Latte Caff Misto/Caf Au Lait Caff Mocha - whip Caff Mocha - no whip Caff Vanilla Frappuccino Blended Coffee - no whip Caff Vanilla Frappuccino Blended Coffee - whip Caff Vanilla Frappuccino Light Blended Coffee Cappuccino

13

Caramel Apple Spice - no whip Caramel Apple Spice - whip Caramel Frappuccino Blended Coffee - no whip Caramel Frappuccino Blended Coffee - whip Caramel Frappuccino Light Blended Coffee Caramel Macchiato Chocolate Milk Cinnamon Dolce Crme - no whip Cinnamon Dolce Crme - whip Cinnamon Dolce Frappuccino Blended Coffee - no whip

14