Starbucks 1996 Case Study

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Starbucks 1996

Case Background:

By 1996, Howard Schultz, Chairman and CEO of Starbucks Corporation had firmly established a leadership position in the specialty coffee industry. By the end of fiscal 1996 Starbucks employed more than 20,000 people and encompassed over 1,000 retail locations in 32 markets throughout North America as well as two new stores in Tokyo, Japan.

With such rapid growth and an ongoing evaluation of new opportunities within domestic and international retail markets, new specialty sales partners, penetration into the grocery channel, and the future potential of their mail order business- Starbucks was in a position to attempt developing its brand beyond being the preferred outlet for purchasing coffee to becoming a preferred consumer brand.

Key Questions:
1) Is Starbucks growing in the best way possible?
2) Is Starbucks overextending in its quest for growth?


The coffee industry was highly fragmented with few dominant players. Competitively, Starbucks had a clear stronghold on all facets:

• Sourcing (diversified portfolio of high quality exporters/close relationships with those exporters) • Packaging (unique vacuum sealed package, ensuring a higher degree of freshness than competition) • Supply Chain Operations (best transportation rates in the industry/ SCO serving four business units in order to eliminate redundancy and maximize efficiency)

• Retail Sales (primary growth vehicle/adoption of brand essence/experience by customer) • Employees / Baristas (overall, most highly trained and knowledgeable in the industry) • Merchandising (only carrying the highest quality coffee-making equipment and accessories) • Disciplined Real-Estate approach (tremendous flexibility and innovative “store clustering” concept maximizing market share in given areas and building regional reputation)

• Specialty Sales (partnerships existed with many different companies providing Starbucks with revenue growth potential and increased name recognition)
• New Ventures (Dreyer’s Ice Cream, bottled Frappuccino product w/ Pepsi, and penetration into the grocery channel) • Mail Order (Encore DM program boosted sales by increasing transaction size, and introducing customers to a wide range of company products)

• Financial (Starbuck’s stock price and EPS had been rapidly increasing over the past five years) • Marketing (brand equity primarily generated by retail business- Starbucks is not just coffee, it’s a place, an experience)

Starbucks must decide how it should leverage its core competencies against various growth opportunities: Key consumer drivers of Starbucks success:
1) Health consciousness
2) Social experience/socializing (“The Starbucks Experience”) 3) Affordable luxuries
4) Awareness

• Introduction of Starbucks Coffee at McDonalds-

Starbucks should beware of diluting the brand. McDonalds does not portray a health conscious, luxurious atmosphere. Associating a clearly positioned “white color product” in an environment that clashes with the luxury essence of the Starbucks product, may cause confusion and inevitably tarnish the brand. In addition, McDonalds certainly does not provide a cohesive social “experience” with the Starbucks brand.

• Further expansion of retail operations-

If Starbucks continues to saturate areas with retail stores, they may not only lose some of the quality control over these locations, but begin to deteriorate the brand image. A unique “third place” between work and home providing luxury and a rich social experience will not be very appealing if, over time, there’s one on every corner. However, Starbucks could grow organically- current stores could become more elegant, a place welcoming, rewarding, and surprising customers at a higher level than what they’re accustomed to. By further developing current retail locations, Starbucks may be able to gain greater market share in areas without adding new stores.

• Leveraging...
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