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Starbuck's Case Study

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Strategic Management Group 4

on 21 October 2014

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Transcript of Starbuck's Case Study

Starbucks Case Study
Group Four
Starbucks Corporate was established in 1987.
A cross between a retail coffee bean store and espresso bar/cafe.
Expanded into tea, single-cup coffee segment, bottled drinks, food, juice, and more.

Starbucks Mission: To inspire and nurture the human spirit--one person, one cup, and one neighborhood at a time.

Total stores: 20,519 (as of March 30, 2014) in 66 countries
Opened first international location abroad in Japan (1996).
Large number of international and domestic locations are licensed stores.

Nearly 800 stores in the US and 100 abroad were closed following the economic crisis in 2008.

Strong emphasis on customer service, store design, location, ambiance.
Employees are referred to as partners-- all full-time and part-time (20 hours or more) partners are eligible for health care benefits.

"Almost unlike an retailer or restaurant, we are completely vertically integrated. We source coffee from 30 countries. We have a propriety roasting process. We distribute to company owned stores and finally serve the coffee."
-Howard Schultz
Starbucks at a Glance
On the basis of a strategic analysis, suggest how Starbucks should obtain their future goals and explain where Management should be especially aware of future obstacles?
Question:
Position of Starbucks in India
Strengths
1. Strong market position and global brand recognition
2. Strong financial performance
3. Products of the highest quality
4. Diverse product mix
5. Location and aesthetic appeal of its stores
6. Use of technology and mobile outlets
7. Effective human resource management
8. Goodwill among consumers due to CSR initiatives
Weaknesses
1. Limited liquidity
2. Overcrowding and over-dependence in US market
3. Heavily dependent on its main and key input
4. Expensive products

Opportunities
1. Market Development
One of the fastest growing economies
Increasing disposable income
Supporting infrastructure
2. Political Effects
Indian economy experiencing more stability
Reduced internal turmoil resulting in better working environment
3. Lifestyle Trends
Increasing youth population
Swelling numbers in target consumer group
Fashion statement to drink coffee
Threats
1. Exposed to rises in the cost of coffee and dairy products
2. Competitor intentions
Many of their competitors entered Indian market first
3. Large number Indians enjoy drinking tea instead of coffee
SWOT Analysis
Consumer Behavior: India
Consumer profile is generally limited to 18-30 year-old urban professionals and students

Indian coffee shops are popular for evening snacks with local flavors
For example Cafe Mocha offers a wide range of confectionery and food as well as hookahs to smoke.

No significant traffic with commuters on their way to and from work has been established and there are almost no takeaway sales.

Coffee is becoming a lifestyle symbol for many consumers.

Through growing influences from leading coffee chains, consumers have started to consume coffee at home, as an alternative to tea.

Coffee continues to be the most popular non-alcoholic beverage amongst India's youth, and cafes and a popular place to socialize.

Instant standard coffee continues to be the major contributor towards value sales of coffee, as specialty coffee has yet to take off in India.

Coffee drinks, such as cappuccino, mocha, and latte are gaining in popularity, especially in on-trade outlets
Consumer Strategy: Starbucks
"The company has been very adept at growing coffee culture in India through appealing to professionals, couples, and young students who need an informal social or business outlet. In 2010, the company rebranded itself with a new slogan, "A lot can happen over coffee" and a logo shaped like a dialogue bubble, evoking an image of conversation among friends."
-2014, Euromonitor
Tazo Tea
Recap and Conclusion
Positioning Map
Competitors
Number of Stores
Allowing the company to gain significant competitive advantage in
expanding into the Indian markets

Registering higher growth in both domestic and international markets

Achieving significant economies of scale with superior distribution
channels and supplier relationships

Strength:
Strong Market Position and Global Brand Recognition:
Having operations in over 60 countries
Leveraging its rich brand equity effectively

Strong Financial Performance:


SWOT Analysis


Opportunities

1. Market development

Known as one of the fastest growing economies;

Increasing disposable income;

Supporting infrastructure-malls, high roads…;

Coffee consumption witnessed a steady rise;
Location and Aesthetic appeal of its Stores:
Targeting premium, high-traffic, high-visibility locations
Creating ‘Starbucks Experience’--- a ‘third place’ besides
home and work
 

SWOT Analysis

Target Customer
2. Political effects

The Indian economy has been experiencing more stability as far as the government and political scene is concerned;
There had been reduced internal turmoil resulting from political influences and this has created a better working environment for industries and business in developing countries.

1.Young Adults between 18 to 30 years old
Easy to approach and deliver products
First group likes to try new products
Helps to building brand loyalty
Sustain its growth

2. Professionals e.g. Doctors, Lawyers
Rapid economic growth in India
Create more people with higher income
More affordable for some high quality products with a premium
Price usually is not the first consideration factor
High reputation of Starbucks across countries-> attract them
SWOT Analysis

Weakness:
Limited Liquidity:

Effective Human Resource Management:
Highly knowledge base local employees
Providing great benefits like stock option, retirement accounts and a healthy culture
Providing education program
Ranking 91st in the 100 best places to work for by Fortune Magazine
 
Goodwill among consumers due to Social Responsibly Initiatives:
Ethical mission statement
CHAI Project in India-- directly impact more than 12,000 villagers with health services and
economic development assistance


Threats
1. Starbucks are exposed to rises in the cost of coffee and dairy products.

2. Competitor intentions
There are many competitors in the Indian coffee market. All these competitors entered Indian market before Starbucks, thus they have established a certain degree of basis already.

Weakness:

SWOT Analysis

3. Lifestyle trend
Increasing young population;
Swelling numbers in the target consumer group: educated, college going, young and employed;
Regard drinking coffee and experimenting with various flavors as a fashion stuff.




Accord with Starbuck’s concept of ‘selling an experience’.

3. Large number of people in India enjoy having tea instead of coffee consumption.

Limited Liquidity
3. Large number of people in India enjoy having tea instead of coffee.

Products of the Highest Quality:
Giving the highest importance to the quality of their products
 

SWOT Analysis
Recent Company Challenges
Weakness:


SWOT Analysis

Use of Technology and Mobile Outlets:
Mobile application “Starbucks App’ in both apple and android software’s
MyStarbucksIdea.com
Diverse Product Mix:
Diverse product offerings
Strength:
Agenda:
1. Starbucks
2. Recent Company Challenges
3. SWOT of India
4. SWOT of Starbucks in India
5. Position of Starbucks in India
6.Recommedation&Conclusion
Starbuck’s had significant operating income decreases in 2013 as a result of a US$2.8 billion payment to Kraft Foods Global to settle a dispute from 2010
The payment was settlement money after Starbucks chose to prematurely end an agreement that allowed Kraft to distribute Starbucks’ packaged coffee to grocery retailers
Experienced three consecutive years of losing share between 2009 and 2012 but experienced strength in 2013
Financial performance is highly dependent on our Americas operating segment, as it comprised approximately 74% of consolidated total net revenues in fiscal 2013
If the Americas operating segment revenue trends slow or decline, our other segments may be unable to make up any significant shortfall and our business and financial results could be adversely affected
“Tea is one of life’s simple pleasures. We begin with the world’s finest tea leaves, then artfully blend them with herbs, spices and botanicals to create unexpectedly rich, truly memorable flavor experiences.”
Tazo Tea was founded in 1994 by Steve Smith. The company approached Starbucks CEO when they were looking for further investors and in 1999 Tazo Tea was purchased by Starbucks for $8.1 million.

Tazo’s current slogan is, “The reincarnation of tea,” which would need to be adjusted to better target consumers in India.

To maximize success in India Tazo should be sold through a retail supermarket channel, instead of attempting to open standalone stores.

Furthermore, it should brand itself in the space of a higher class Nestea.

Teavana is a specialty tea and tea accessory retailer that is based in Atlanta, Georgia. On December 12, 2012 Starbucks acquired Teavana for $620 million.

Teavana offers several products that are similar to Tazo, but it also specializes in tea accessories (teapots, teacups, strainers, etc.)

Teavana also has an advantage in that it has the potential to be both “part tea bar, and part tea emporium.”

For these reasons, we recommend that Starbucks push the Teavana brand in the space of stand alone stores where customers can go both to shop for tea and tea accessories, but also sit down and enjoy specialized teas, much like how in a Starbucks you can sit down and enjoy a cup of coffee.

Teavana
SWOT Analysis of Starbucks in India
Overcrowding & Over-dependence in the United States market:
8078 stores in the United States
Generating a huge percentage of their total revenue from the US
Sensitive to the US economy and hard to spread business risks

Heavily dependent on its main and key input:
Overly price sensitive to the fluctuations in the price of coffee beans
Poor agriculture technology in some parts of India

Expensive Products:
Premium to the middle tiers of the market segment
—limited customer segment
SWOT Analysis: India
Strengths
Several new entrants
Agricultural resources
Enormous, young and still growing population
Low consumption
Weaknesses
State by state legislation and bureaucracy
Coffee and soft drinks considered a luxury
Poor infrastructure
Relatively poor country
Opportunities
Rising disposable income and urbanizing
Immense size of India ensures that market maturity is a distant prospect
Coffee gains popularity in India
Threats
The division between the urban rich and the rural poor is as great as ever
Terrorist attacks have had a negative effect on tourism
Starbucks best strategy for expansion is through their employees and by adapting their business plan to meet the unique needs of the Indian consumer:

Employee Empowerment
The population of India is very young, and by promoting employee programs such as educational subsidies, Starbucks will attract the incoming workforce.

Catering to India
While drinking coffee is becoming more common, Indians prefer to consume tea beverages.
Starbucks should adapt their food menu to meet the taste of Indian costumers, which means providing food products with a spicy and rich taste as well as implementing some of the local cuisine.
Starbucks should invest in ensuring that the local Starbucks stores are representative of the Indian culture.
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