Channel Strategy: Starbucks

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Evaluate 7.1
Short Paper: Channel Strategy—Starbucks Corporation
Kathleen Litman
INT 640—Multinational Marketing Strategies

Professor Michelle McKeogh

February 26, 2012

Overview—Starbucks Corporation
According to Starbucks’ 2011 Annual Report, the company is the premier roaster, marketer and retailer of specialty coffee in the world, with over 17,000 stores in more than 55 countries, as of fiscal year 2011. 2011 was an important year for the company in that it celebrated its 40th anniversary (it was founded in 1971 in Seattle, with its first store in the historic Pike’s Place Fish Market) and also enjoyed one of its best years ever in terms of financial performance, with global revenues reaching $11.7 billion, an 11% same-store increase over 2010 for the company overall, with global sales (over the same period) rising more than 8%. CEO Howard Schultz noted that these impressive results were achieved during a time of dramatically rising commodity prices, including coffee, as well as a continually weak economic environment around the world, particularly in Europe and the U.S. Due to the company’s strong performance over the last several years—a time during which time Howard Schultz instituted a dramatic turn-around strategy to cut expenses, close non-performing stores and pull back on some of its peripheral brand extensions like music and food—Starbucks is bullish on its prospects for future growth, particularly in foreign markets, where it plans to open 800 new stores in 2012, including its first-ever in India, where it is partnering with Indian conglomerate Tata. Starbucks began its strategy of expansion abroad in 1987, when it entered Canada. Its first foray into a foreign market outside of North America was in Japan in 1996, where it has opened—as of 2011—its 900th store. The company reported that its international operations accounted for 22% of its overall revenue in 2011. As its core product, Starbuck sells high quality, whole bean coffee, along with handcrafted specialty coffee and tea drinks, a variety of food items (sandwiches, salads, etc.) in its company operated stores and licensed locations around the world. The company also sells coffee and tea products through other retail channels such as grocery stores, Club stores and foodservice companies. In a select number of its domestic and international stores, including the United Kingdom, Thailand, Canada and Chile, the company also sells coffee brewing equipment and other merchandise. Besides the primary Starbucks coffee brand, the portfolio includes Tazo® Tea, Seattle’s Best Coffee® and most recently the VIA® Ready Brew (instant coffee). Starbucks is one of the world’s leading brands, with its iconic mermaid logo so recognizable around the globe that the company joins a rarefied group of brand behemoths (like Nike, Coca-Cola and McDonald’s) where the logo by itself instantly conjures the brand, with no name needed. In terms of culture, as a company, Starbucks is also known as much for its socially conscious stance on environmental issues, commitment to fair-trade practices and educational support for its farmers, plus its progressive employee-centric focus, as it is on its coffee. The company’s mission is to “balance profitability with a social conscience.” What is the company’s current channel strategy? What is the reasoning behind this channel selection? For its international operations, Starbucks chose a different path than it has taken with its domestic business, in which it owns its entire line of coffee-bar stores outright (leasing the space), with no franchise investments or partnerships. Instead, in its foreign markets, the company has adopted a strategy of joint-venture partnerships through company-operated and licensed stores to facilitate easy of entry, minimize risk along with upfront cost, and give Starbucks stores more appeal in the local community. As of the end of 2011, there were 2,326 company operated stores and 3,890 licensed...
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