SECTION C GROUP 10 RAMBABU NAIK DIVYAA IYER TATHAGAT TRIPATHI BAING SANKET SURESH SARADA PRASANNA DALAI SUDHANSHU

LADDHA PGP/015/167 PGP/015/140 PGP/015/190 PGP/015/135 PGP/015/179 PGP/015/186

BARRIERS TO ENTRY - LOW Low barriers to entry Start up costs were low ;high product differentiation Any retail food chain could also serve coffee THREAT OF SUBSTITUTES MODERATE Products that act as substitutes : Tea, Juice, Smoothies, Cola, Alcohol and even snack items However no true substitute for coffee Environment/Ambience : People may choose to visit less expensive/ premium coffee outlets, restaurants, ice cream parlours etc CUSTOMER BARGAINING POWER LOW In the premium market, the customers have less bargaining power With the entry of players who offer premium coffee at lower prices, the customer bargaining power has increased

Barriers to entry

Threat of Substitutes

Competitors

Supplier Bargaining Power

Customer Bargaining Power

SUPPLIER BARGAINING POWER -LOW Coffee bean suppliers were small/middle sized farmers in Pacific Rim/Latin America They had no union and this was their livelihood. Hence they cant dictate prices. Suppliers of technology for vending machines/espresso etc have more bargaining power Suppliers of paper and plastic products have less bargaining power due to abundance of alternatives

COMPETITORS - HIGH Diedrichs coffee Second Cup Caribou Coffee People A.L. Van Houtte Coffee Beanery and more

Discouraged price wars Encouraged differentiation/focus

BEHAVIOUR OF CONSUMER BASE

Coffee consumption was on the rise 22% of US consumers purchased specialty coffee The consumers had an average income of $35000 hence not sensitive to price Adoption of healthier lifestyle -replacing alcohol Popularity of coffee bars to meet Liking for affordable luxuries ( specialty coffee fit the bill) Enormous pool of customers - In 1996 US coffee consumption was 1.7 cups per day per person Research showed that a specialty coffee drinker rarely reverted back to average quality brew

Competi -tion Threat of Substitutes

REASONS FOR ATTRACTIVENESS

Declining sales of Cola No true substitute for coffee

Low Supplier and Consumer bargaining power

Threat of new entrants can be mitigated by

First mover firm Establishing brand Expanding aggressively Having a strong differentiated product

From Porters Analysis and Consumer analysis: The Specialty Coffee Industry is attractive

Net Revenues(mn $)
600 400 200 0 1994 1995 1996 0 1 0.5

Debt to Equity Ratio

6 4 2 1994 1995 1996

Return on Assets

0
1994 1995 1996

Starbucks asset are gradually being financed more through equity and is safe from creditors. The Debt to Equity ratio has reduced from around 0.74 to .38

The net revenues have increased by 140% from 1994 to 1996

The Return on Assets has also increased showing that efficiency of using assets to
generate earnings has improved

With current financial stability, Starbucks can engage in marketing, advertising activities as well as aggressive expansion to strengthen its position

STARBUCKS : GROWTH DRIVERS

CRITERIA 1 Provides access to a wide variety of markets

High Quality coffee by appropriate roasting operations Efficient transportation and forecasting model Retail Sales - provided an experience third place formula Entering the international market before it s competitors Aggressive expansion Employee training and satisfaction higher wages and hospital insurance benefits

CRITERIA 3 Contributes significantly to perceived customer benefits of end product CRITERIA 2 Difficult to imitate by competitors

WHAT IS A CORE COMPETENCY ?

STARBUCKS : CORE COMPETENCY

Latest and improved technology roasting operations

FACTOR

PPROVIDE MARKET ACCESS

DIFFICULT TO IMITATE

CONTRIBUTE TO CUSTOMER BENEFIT

Cannot be copied by competitors Important in maintaining quality and freshness

ROASTING TECHNIQUE TRANSPORTATION THIRD PLACE FORMULA INTERNATIONAL EXPANSION AGGRESSIVE EXPANSION EMPLOYEE TRAINING and BENEFITS

no information

Efficient transportation and forecasting model

Best in the industry

Starbucks provided an experience third place formula Entering the international market before its

competitors Provides head start

With other players having franchisees mainly, expansion rapidly is difficult

Retail Method Aggressive expansion Employee training and satisfaction higher wages

and hospital insurance benefits

CORE COMPETENCIES

RETAIL SALES AGGRESSIVE EXPANSION

CONCERNS?
THIRD PLACE IDEOLOGY

Rapid Expansion

GROWTH and LARGE MARKET PRESENCE

Controlling and Coordinating Issues

OTHER VENTURES Bottled Frapuccino Grocery Markets Ice Creams Mail Order
These are all

If STARBUCKS stands for EXPERIENCE, then the brand name will deteriorate due to such inefficient retail outlets.

Possibilities of compromise of quality of service

about coffee while Starbucks stands for experience . Hence

Hence the current strategy needs looking into for long term sustainability

The core product coffee should be given importance and not the end product - experience

Eg: Messy shop, Average coffee and poor service at Brewery

inconsistency in brand image

PRESENT SCENARIO

BUSINESS UNITS
Retail Sales New Ventures

Source of brand equity the place, the experience Never about just the coffee Brand dilution issues

THE WAY FORWARD

Concentrate on the Core Product Coffee Build Brand Image for the Specialty Coffee Starbucks offers Starbucks should attract customers for coffee and not for the experience With this strategy, new ventures can be considered for further growth Else, there is an inconsistency in brand image which would confuse customers With Starbucks financial stability, more can be invested in advertising to promote the Specialty Coffee Brand Image

Grocery stores

Mail Order

Wholesale

CORE PRODUCT : HIGH QUALITY COFFEE

Roasting

Human Resource

Transportation

Rapid Expansion

COMPETENCIES