Case Study of Starbucks

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When the announcement was made in mid 2008 that Starbucks would be closing nearly three-quarters of its 84 Australian stores there was mixed reaction. Some people were shocked, others were triumphant. Journalists used every pun in the book to create a sensational headline, and it seemed everyone had a theory as to what went wrong. This case outlines the astounding growth and expansion of the Starbucks brand worldwide, including to Australia. It then shifts focus to describe the extent of the store closures in Australia, before offering several reasons for the failure and lessons that others might learn from the case.

2. Background

Founded in 1971, Starbucks' first store was in Seattle's Pike Place Market. By the time it went public in 1992, it had 140 stores and was expanding at a breakneck pace, with a growing store count of an extra 40-60% a year. Whilst former CEO Jim Donald claimed that "we don't want to take over the world", during the 1990s and early 2000s, Starbucks were opening on average at least one store a day (Palmer, 2008). In 2008 it was claimed to be opening seven stores a day worldwide. Not surprisingly, Starbucks is now the largest coffee chain operator in the world, with more than 15,000 stores in 44 countries, and in 2007, accounted for 39% of the world's total specialist coffee house sales (Euromonitor, 2008a). In North America alone, it serves 50 million people a week, and is now an indelible part of the urban landscape.

But just how did Starbucks become such a phenomenon? Firstly, it successfully Americanised the European coffee tradition - something no other coffee house had done previously. Before Starbucks, coffee in its current form (latte, frappacino, mocha, etc.) was alien to most US consumers. Secondly, Starbucks did not just sell coffee - it sold an experience. As founding CEO Howard Schultz explained, "We are not in the coffee business serving people, we're in the people business serving coffee" (Schultz and Yang, 1997). This epitomised the emphasis on customer service such as making eye contact and greeting each customer within 5 seconds, cleaning tables promptly and remembering the names of regular customers. From inception, Starbucks' purpose was to reinvent a commodity with a sense of romance, atmosphere, sophistication and sense of community (Schultz and Yang, 1997). Next, Starbucks created a 'third place' in people's lives - somewhere between home and work where they could sit and relax. This was a novelty in the US where in many small towns café culture consisted of filter coffee on a hot plate. In this way, Starbucks positioned itself to not only sell coffee, but also offer an experience. It was conceived as a lifestyle café. The establishment of the café as a social hub, with comfortable chairs and music has been just as important a part of the Starbucks brand as its coffee.

All this came with a premium price. While people were aware that the beverages at Starbucks were more expensive than at many cafés, they still frequented the outlets as it was a place 'to see and be seen'. In this way, the brand was widely accepted and became, to an extent, a symbol of status, and everyone's must-have accessory on their way to work. So, not only did Starbucks revolutionise how Americans drank coffee, it also revolutionised how much people were prepared to pay.

Consistency of product across stores, and even national boundaries, has been a hallmark of Starbucks. Like McDonald's, Starbucks claims that a customer should be able to visit a store anywhere in the world and buy a coffee exactly to specification. This sentiment is echoed by Mark Ring, CEO of Starbucks Australia who stated "consistency is really important to our customers ... a consistency in the product . . . the overall experience when you walk into a café . . . the music . . . the lighting . . . the furniture . . . the person who is working the bar". So, whilst there might be slight differences between Starbucks in...
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