Starbucks Case Analysis

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Case Analysis
August 24, 2008

Analysis of Current Situation

1.Economic Conditions: In a time of inflation when the purchase of nonessential items is down, Starbucks is feeling the effects. a.600 Starbucks locations will close by mid-year 2009
b.This represents 8.7% of the stores nationwide..affecting 44 states..88 locations in California alone. c.12,000 employees will lose their jobs…Starbucks will offer relocation packages to many employees, severances to others. d.Fewer than 200 new US locations will be opened in 2009….this is in comparison to 900 new US locations projected to be opened in 2008. e.Infrastructure realignments of non-store support staff resulted in the reduction of 1,000 positions. f.In response to competition and imitators, Starbucks now offers the “bottomless” $1.00 coffee. g.Wireless internet is no longer free and the comfortable lounges in the stores are being replaced with less comfortable furnishings.

2.Cultural, Social values and Trends:
a.Starbucks has prided itself on being an experience, not just a cup of coffee. Starbucks has become a social experience. Management focused efforts in becoming the “third place”…. If you weren’t at home or at work, you would be at Starbucks. b.Starbucks has become a cultural brand such as iPod.

c.Starbucks has a Corporate Social Responsibility policy in place to fulfill its commitment to positively contribute to local communities and the environment. d.Corporate partnerships with over 46 companies such as Barnes and Noble, Apple and Target contribute to its success. e.Starbucks offers over 30 blends and single origin coffees. f.In addition to coffee, Starbucks sell pastries, sandwiches, salads, music, merchandise such as coffee makers and espresso machines. g.Starbucks has also entered the entertainment industry by selling music and books from emerging and established talent. h.Employees are referred to as “partners”.

3.Political and Legal:
a.Benefits—Starbucks has a comprehensive benefits package, named “Your Special Blend”, that is recognized nationally. The benefits package includes health, vision and dental benefits, income protection benefits, education reimbursement, employee stock purchase plans, stock options and more. Employees who work 20+ hours weekly are eligible. b.Diversity is a key initiative in the way Starbucks conducts business, including businesses for minorities and women. c.Pay scale—baristas make from $7.95-$8.15/hr. Federal minimum wage is $6.55 currently.

1.Existing Competitors
a.McDonalds—now offers premium coffee at $1.07 per cup which is roughly $.60 per cup less than Starbucks. There are test markets currently in place to evaluate the new coffee bars being opened by McDonalds across the country. Cappuccinos, espressos, iced coffees and more comfortable seating are efforts by McDonalds to mimic the Starbucks “experience”. b.Dunkin Doughnuts—offers more than 52 varieties of doughnuts. Serves over 2 million cups of coffee daily and not just plain coffee. You can get flavored coffees, espressos made just the way you like it. In addition to in store sales of coffee, customers can sign up online to have regular home delivery of Dunkin Doughnuts coffee. The average cost for a cup of coffee is $1.39. 2.Potential New Competitor

a.Local coffee houses that will offer wireless internet and lower priced coffees. Locally, Courtyard Coffee. 3.Substitute Products
a.Folgers, Maxwell House and Nestle now offer premium coffees in supermarkets at a lower cost to Starbucks coffees. In the current state of inflation, these products could easily be substituted for the Starbucks brands. 4.Suppliers—Suppliers must be accredited by the “Starbucks Coffee Accreditation program. Starbucks has a strict responsible business practices policy and suppliers are required to follow the same standards. Suppliers can “apply” to Starbucks for a fee in order to...
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