Starbucks Case

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Copyright © 2003 Thunderbird, The American Graduate School of International Management. All rights reserved. This case was prepared by Professors Michael Moffett and Kannan Ramaswamy for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. This case draws upon information presented in “Planet Starbucks (A)” by the same authors.

Planet Starbucks (B):
Caffeinating the World
Ten years ago, we had 125 stores and 2000 employees. [Today,] we have 60,000 people working in 28 markets outside North America, serving approximately 20 million customers a week. Our core customer is coming in about 18 times a month. With the majority of adults around the world drinking two cups of coffee a day and with Starbucks having less than 7% share of total coffee consumption in the U.S. and less than 1% worldwide, these are the early days for the growth and development of the company. We’ve got a model that has been well tested from market to market.

Q&A With Starbucks’ Howard Schultz
BusinessWeek Online, September 9, 2002
Peter Maslen, President of Starbucks International, had just returned from Greece where the company had opened its first café in downtown Athens. He had logged thousands of miles over the past few years shuttling from country to country extending the boundaries of the Starbucks empire. In anticipation of stagnating growth in North America, the company had embarked on a global expansion strategy with the objective of becoming “a great, enduring company with the most recognized and respected brand in the world.”

Starting with Japan in 1995, the company had blazed through several key markets in Asia and Europe. The company looked to move into more of the emerging world, including Latin America. While much of the developed world had been conquered—or at least attacked—new growth potential had shifted to the less-developed regions. Although the company had already established beachheads in several emerging markets, many believed that the infrastructure and disposable income in these regions would present forbidding obstacles for Starbucks’ expansion strategies. As Peter Maslen sipped his cup of steaming espresso, his mind wandered to the challenges his company faced in global markets. Did it make sense for Starbucks to continue expanding globally at such a breakneck pace? Would the firm be able to meet the market’s insatiable appetite for earnings growth with its ventures into European and emerging markets?

Starbucks was founded in Seattle by Gerald Baldwin, Gordon Bowker and Ziev Siegl in 1971 as a gourmet coffee bean roaster and distributor. In 1982 Howard Schultz joined the company as a member of their marketing team. After a visit to Italy for a trade show, Schultz urged the partners to consider opening espresso bars in conjunction with their coffee sales. In 1984 Starbucks opened its first espresso bar in a small corner of the company’s downtown Seattle Starbucks store, to rave reviews. Although Schultz urged the company to expand the espresso bar line, the controlling partners, now Baldwin and Bowker, were unwilling to enter what they considered the fast food business, wishing to focus on the coffee roasting niche market.

2 A07-03-0013
Howard Schultz then left Starbucks, and with the financial backing of his former partners, opened Il Giornale in 1985, an espresso bar that sold coffee and assorted coffee beverages made exclusively with Starbucks’ beans. Two years later, Schultz bought the former Seattle Starbucks company, six stores and roasting plant, for $3.8 million from Baldwin (who wished to focus on managing Peet’s Coffee) and Bowker (who wished to cash out of the business). Schultz now was in control of Starbucks, and with new investors, began building a global business which reached sales of $3.28 billion by 2002 and was acclaimed one of the top 100 growing global brands.

The Starbucks Experience
Howard Schultz’s dream was to take the...
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