W1.

Closed Case Study

Table of Contents

1 Action Plan

2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
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1 ACTION PLAN

To come up with strategies for the Away-from market, At-home market and the Chinese market, we
conducted PEST analysis and understood Starbucks’s pain-points in the US coffee market.

1 Week
Key 1 Analyze US coffee market and
Milestone Starbucks’s strength and pain-points
Key > External Factor Analysis
Activities – How big is the market and how much will it grow?
– Who are the key players and what are their success factors?
– What are key issues that affect players?
> Starbucks Analysis
– How are the value chain and revenue model composed?
– What are the reasons for Starbucks’s revenue down-turn?
> Market Segmentation
– What are ways to survive within intense competition in the
Away-from-home market?
– What is Starbucks’s position in the At-home market?
– What are the ideal ways to expand in the Chinese market?
2 Strategy ideation according to the
internal /external analysis
> Hypothesis Verification
– What type of customers consume Starbucks coffee, and what
type do they prefer?
– What would happen if price or quality shifts in the At-home
market?
– Should Starbucks maintain its original business model in China?
> Strategies Establishment
– What are ways to survive within intense competition in the
Away-from-home market?
– How should Starbucks enhance quality of the products in the
At-home market?
– Who are new customer segments to target and what new
channels are available in the At-home market?
– What are the ideal ways to expand in the Chinese market?

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
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2 EXTERNAL ANLYSIS

Several external threats pose opportunities & challenges to the growth of the global coffee Industry.

Industry Overview PEST Analysis

Global Coffee Political Economic
Industry Revenue (USD,bn) (USD,mn)

88.4 93.2
83.1 U.S. 11,000
80
75 74 Brazil 7,318

Germany 6,852

Japan 6,069

Italy 4,730
Rising global Restraints on
U.K. 1,805 U.S. Economic
tension foreign owned Increasing price
China 2,133 enterprise Downturn due
between China of coffee beans
and the U.S. by China to inflation
2019 2020 2021 2022 2023 2024(e)
[Source] Statista

Regional Coffee Industry Socio-cultural Technological

Expected Growth Rate (USD,mn)

U.S. Europe China

CAGR 5.9% CAGR 3.92% CAGR 10.42%
3,503
14,650 30,361
25,674
11,000 2,133

Desire for Technological

Declined employee Digitalization
experiential developments to
morale causing throughout
convenience by provide virtual
labor unions operation
2023 2028(e) 2023 2028(e) 2023 2028(e) Gen Z Consumers experiences
[Source] Mordor

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 2 Competitor
COMPETITORAnalysis
ANALYSIS

Starbucks faces challenge to defend its leader position in the Away-From-Home market,
while trying to increase its brand recognition in At-Home market.

Away-From-Home At-Home
Starbucks Status Quo Starbucks Status Quo
Quality
• Market Leader • Low level of market control
• Focuses on premium coffee - Market Leader in only Ready-To-Drink market
drinks with customization • Struggles to meet different market needs & beat diverse competitors
options

Price Market segmentation

Packaged-Coffee Beans Single-Serve Platforms

Franchise Food Suppliers to grow as a specialty coffee Retailers

• No. 1 Coffee Beans • Offers both coffee pods &

• Low price • Low price coffee retailer platform
• Menu diversification • Menu diversification • Excel in flavourful
supported by licensed supported by licensed taste
store operation • store operation
Drinks with lower price • Affordable price • Partnership with
• Quality coffee through • Diversification in coffee • Fair-Trade issue Starbucks
McCafe drinks • Offers both coffee pods &
platform
• Premium coffee
Coffee Retailers across various market segments • Excel in bold taste Ready-To-Drink
• High price
• Focused on
• Premium coffee
quick-service • Low price coffee • Focuses on quality cold-
• Strong • Focuses on offering
• Excel in • Only targets NA brew coffee
presence in UK instant coffee mix
breakfast & market • Limited range of products
market
lunch menu

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
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3 INTERNAL ANALYSIS

Starbucks must revitalize revenue growth and flourish in the Chinese Market.
Financial Overview Operating Segments Product Segments
Revenues
Starbucks Number of Stores and Revenue 18% Away At Home
40000 40 From Channel
North International Channel Home Development
30000 30 America Development
10%
Revenue Beverage Single Serve
20000 20 72%
70% 24% 6%
Food Packaged
10000 10 Coffee Beans
Stores NA China Other Intl. • 36,000 Stores Ready to
17,295 18,416
0 0 48% 52% • 74% Beverage
Drink
2016 2017 2018 2019 2020 2021 2022 • 6.67%
The international segment is emerging as a significant • 22% Food
CAGR in
Stores Net Revenue revenue stream with help from China • 4% Other past 5 yr.

(mn, USD)
Rising Operating Expenses Expansion to China
27,860

24,573
22,728
21,137
22,278 Starbucks Chinese Stores
• First Expansion into China in form of ‘East China’ JV
17,462
18,643 1999
• JV with Uni-President Enterprises Corporation & President 9000E
Chain Store Corporation
(E) CAGR 14.35%

2017 • 1.3 bn USD buy out of ‘East China’ JV

• 3,521 Stores become 100% Company Operated

2016 2017 2018 2019 2020 2021 2022

[Source] Starbucks 10-k

2023 • 6019 Stores open and planning for 9000 stores by 2025
Same store sales are falling, causing slow down
in revenues. All the while, costs are rising. • 220 mn USD Investment planned for DX Center

5E
1

2
20

20

20

20

20

20

20

2
20
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#
3 VALUE
Value Chain
CHAIN

Costs are increasing whilst marketing and sales are digitalizing for better experiential convenience.

Logistics Operations Marketing & Sales

Coffee Bean Sourcing Forms of ‘Third Place’ Stores Multi-channel Marketing

Company Operated Licensed Stores

• Tighter quality control • Higher operating profit

margins
• Better equipped for
The Coffee Belt
delivery • Better Localization
capability Place & Product SNS Marketing Community &
• Higher standards of Marketing Event Marketing
employee welfare • Less risk of regulation
• Arabica and Robusta Coffee Beans are mainly Marketing budget rose from 305.1 -> 416.7 mn USD
• 100% of Chinese stores • JV with E-mart, Tata [Source] Starbucks 10-k
sourced from farms across the Coffee Belt
group etc.
• Coffee Bean prices have almost doubled since
2021 due to inflationary pressures Diversifying and Digitalizing Sales
From Stores to Third Places
Vertical Integration of Logistics Away from Home At Home

• All coffee importing, roasting, packaging, and global Heavy Friendly Star system
Investment workers in rewarding
distribution of coffee are controlled directly ‘Green loyal Company
into Store Various
Online
design Aprons’ customers & Licensed
1.5 bn USD Sales Retail Shops
Annual 800 mn USD • Drive-thru
Spending • Nestle Global Alliance
in Logistics • O2O & Delivery
Structure • Pepsi Co. Collaboration
2022 187% ↑ 2030 No. 1 Customer Loyalty in Coffee Industry
• Mobile Ordering

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
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 4 FRAMEWORK

Intense competition resulted in revenue downturn of Starbucks.

We analyzed problems within each market and came up with strategies according to the operational segments.

01 External Analysis 02 Internal Analysis 03 Strategy Ideation

US Coffee Market Operational Segments

1 Away-from-Home Market
• Menu diversification
• Price control
Away-from-Home At-Home
• Enhance customer experience
Company-based Ready to Drink
operation products

Economic downturn Emerging competitors

due to Inflation
Increased price sensitivity of customers
Delivery and
mobile orders
Packaged
coffee beans
2 At-Home Market
with low price • Channel diversification
Large portion of
loyal customers Single platform • Quality enhancement
• New customer segmentation

US Market Saturation by number of stores China Market Penetration

[Source] IBIS world 3 China Market Expansion
CAGR 3.1%
• Geographic analysis
38,411
37,189 Coffee shops
• Store type selection
Coffee 31,556 Opened more 75% International 220mn USD • Customer preference
shops 21,367 Snack stores
Snack stores
than 6,000 Company-operated Investment
2022 stores in 2022 revenue from China planned
2020
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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
COPYRIGHT 2023. SBABUSINESSSTRATEGYTEAM. ALL RIGHTS RESERVED
 5 STRATEGY 1

To deal with increased needs for food and enlarge revenue, Starbucks should implement these strategies.

Benchmarking Case 50% Off for All Drinks

All Time High Food Attach with Meal Purchase
Revenue Proportion of Food Food Attach CoGS
(USD)

18.1% 3.50
18.0%
Profit
17.4% ×1.6 Total Profit
16.2%
Promotion 1.00
3.50
=
Revenue of
15.3% 40% Plan 4.00
Beverage
1.00
25% Only
1.50
[Source] Herald Economics Beverage Food &
Only Beverage
14

15

16

17

18

19

20

21

22

2018 2022 Discounts americano

20

20

20

20

20

20

20

20

20

[Source] Statista [Source] Food Business News by 55%

Increase both ARPU and # of visits
with lunch purchase
ARPU of Starbucks increased in FY22 due to increased sales of food menu

Lacking Meal Diversity Utilizing Existing Brand Benchmarking Korea

Additional
Food +
28 55 151 Menu

Starbucks should create signature food Salads and soups served in Korean
Starbucks not only lacks in diversity within existing items,
items utilizing its existing brand market would increase competitive edge
it also lacks key meal menus such as salads and soups.

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 5 STRATEGY 1

With increased needs for cold drinks and younger customer base, Starbucks should diversify its beverages.

Rise of Customization & Cold Drink

1 Celebrity Custom Beverage
Customized Beverage Cold Drink Benchmarking Case • Katy Perry’s Nondairy
BTS Meal Effect Vanilla Latte
• U.S. same-store • Zendaya’s Coconut
When compared
sales climbed 25.9% Milk Matcha Latte
to 5 years ago, “The younger you go,
• App installation Celebrity Custom Sets • Pedro Pascal’s Quad
customized the colder the beverage”
grew 23% w/w Espresso in a Venti
beverage Celebrity Meals
60% represent 75% - CMO Brady Brewer
a 9% growth
2 Customer Favorites
Cold Hot
Custom Not customed
[Source] Food Business News
[Source] Food Business News
Launching
Gen Z Bringing in Creating new
Shaken Iced Espresso new drinks by
drinks that drinks utilizing
“Young consumers like to customer
50% YoY went viral on customization
customize and make votes through
social media data
the drink their own, Seasonal Menu mobile app
and then post
pictures on
FY21 FY22
social media”
3 Enlarging Seasonal Menu
[Source] NY Times
= Seasons Available
[Source] Food Business
News

(2003) (2023)
• Spring
Focus on Divide summer • Draw in more users
• Summer
Seasonal menu of Starbucks
has been about the same
5 •
•
Fall
Holidays
cold drinks
like
season and
release new menu
• Additional trial
period for future
throughout the years Frappuccino various times regular menu
• Winter

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 5 STRATEGY 1

For pricing control, it can hold base prices and increase customization prices.
For customer experience, it can have delivery service with rewards system.
Pricing Control Customer Experience

Holding Base Prices Dysfunctional System

The price of a cup of
7.6% YoY
coffee has jumped Loyal Customer Revenue Enlarging Delivery Business
4.9 because of the
economic downturn 41% of loyal 2018
caused by inflation customers
FY21 FY22
creates 55%
Competitive advantage from others of revenue
55% 2023
which increase their prices Maintain the current Enhancing for Starbucks
base prices which can customer
*Not Loyal Customers(59%) are price-sensitive
be lower than others retention rate
Starbucks delivery is currently ineligible for Starbucks Rewards benefits

High reliance on customization Increasing Customization Prices

“Modifiers” generate $1
billion in “high-margin” Delivery Service with Rewards System
revenue every year
60%

Customized

Loyal Customers comprise a large

Since loyal customers have large
proportion(41%) of overall customers preference for customization, Boost customer loyalty and Plethora of customized offers and
they are not price-sensitive for ARPU encourage recurring customers targeted communication

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
COPYRIGHT 2023. SBABUSINESSSTRATEGYTEAM. ALL RIGHTS RESERVED
6 STRATEGY 2

Starbucks should charge higher price in dark roasted coffee

by enhancing its quality to increase its revenue in packaged coffee beans market.

Problem Analysis Strategy

Light & Medium-roasted Dark-roasted Diversification in Product Line

• Suitable for customers who require
premium coffee experience
• Requires high quality of coffee beans
• Suitable for customers who look for
convenience and common taste
Only one de-caffeine product
• Able to use Medium quality coffee beans
in Starbucks coffee beans line

1 Unbeatable market leader 1 Starbucks as a market leader

• Takes up 1st ~ 3rd sold coffee
beans products
• High quality + affordable prices
Need to produce more
• Takes up 5th sold coffee beans
de-caffeine to earn new customer
product
• 1st in Dark-roasted coffee beans segment

Starbucks’ unsuitable Starbucks’ suitable

2 production system 2 production system
Increase In Quality and Price
• Unable to provide superior • Procurement of medium-quality
coffee beans for light & beans for Dark-roasting
Medium-roasting • Provides Dark-roasted coffee
• Fall in quality of coffee beans products in Away-from-home
market
Improvement in mid-distribution
channel à Enhancement in the quality
à Increase in the price and premium
brand image
Starbucks should focus on diversifying in dark roast coffee beans
instead of investing in light & medium roast coffee.

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 6 STRATEGY 2

Starbucks should increase its market share by making more compatible coffee pods with other companies
and introducing eco-friendly coffee pods.

Too Many Competitors in the Same Market

Keurig Green…
Previous collaborations Additional
Private Label leading to increase in partnership
profitability
Starbucks with
platform
Dunkin'
producers
Folgers' Number of capsule coffee
machines expected to
0% 10% 20% 30% increase at a CAGR of
4.5% during 2023-2031
[Source] Statista Find new partnership to make more compatible coffee pods with other coffee brands

Increased Demand for Eco-Friendly Capsules Benchmarking Case

New
Customer
Segment
Need to expand to new
Aluminium Compostable PBT Plastic customer segment who look
Nestle making paper-based
[Source] Allied Market Research for eco-friendly products
2022 2032 compostable coffee pods
High rate of increase in the expected market size of compostable coffee capsules

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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
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 7 STRATEGY 3

To address the saturated Chinese cafe market, Starbucks can expand to brunch boutique shop with a healthy,
experiential and lifestyle concept.

01 Chinese Coffee Market 02 Starbucks and Customers 03 Starbucks Boutique

1st, 2nd Saturated coffee Starbucks Menu diversification

market (decline of CAGR) • Building a food supply for fresh items
Cities market share: 50%
Limited coffee (#1 among cafes) • Investing more on R&D
60%
3rd purchasing power
Shangdao

Mc cafe
Starbucks 60% of sales are
50% made by loyal 2022
Food and Coffee market in 1st, 2nd cities in China
customers : Enabled by utilizing
existing food supply chains
aiming target
* Customer Segmentation
Locations (vibrant, youthful)

• Xintiandi, Jingansi, Wukang Rd

Food
• 70,000 average weekday foot traffic
• encompassing business, commercial areas
Year 25-34 High digital Seeking and tourist destinations
Middle-high adaptability lifestyle
experience
Marketing and Sales
Coffee

Leveraging brand recognition, Starbucks can enter the brunch boutique market
in China, reflecting customers’ preferred lifestyle experiences Personalized data Reward system Lifestyle brunch
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 1 Action Plan
AGENDA
2 External Analysis

3 Internal Analysis

4 Framework

5 Strategy 1

6 Strategy 2

7 Strategy 3

8 Executive Summary
COPYRIGHT 2023. SBABUSINESSSTRATEGYTEAM. ALL RIGHTS RESERVED
8 EXECUTIVE SUMMARY

Starbucks can recover revenue growth by the provided strategies in 3 different by increasing ARPC and
better fulfilling customer preferences.

External / Internal Analysis Strategy Ideation Expected Outcome

1 Away-from-Home Market
• Menu diversification
• Price control with customization
Intense • Enhancing customer experience Increased ARPC Enhanced
US Inflation Competition customer experience

2 At-Home Market
• Packaged coffee beans market
: New channel development
Lacking • Single platform market Increased
Low Quality : New customer targeting New user influx
Customers market share

3 China Market Expansion

• Geographic selection
• Boutique channel development
Saturate US Customer Penetrating Fulfilled customer
market Preference competition preferences

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E.O.D