Starbucks Case Analysis

Page 1 of 9

Starbucks Case Analysis

By | December 2005
Page 1 of 9
Company Background
Three Seattle academics and entrepreneurs, English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker, started the Starbucks Corporation in 1997. Their primary product was the selling of whole bean coffee in one Seattle store. By early 1980's, this business had grown into four stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. "There store did not offer fresh-brewed coffee sold by the cup, but tasting samples were sometimes available" (Thompson, Jr. et al, 2005). In 1982, Howard Schultz left his job as vice president and general manager of a Swedish company and assumed his new responsibilities as head of marketing and overseeing Starbucks retail stores. He brought new ideas to the owners, but they were often turned down. (Thompson, Jr. et al, 2005) Schultz, in turn, opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed dark roast coffee. By 1987 Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $3.8 million. He changed the name of his coffee bars from Il Giornale to Starbucks and became the president and CEO of the corporation at the age of 34. His intention for the company was to become a national organization growing gradually to 125 stores with a very solid foundation over the next five years. He wanted to create a superior management team by persuading top executives from other well-known corporations to join him. (Thompson, Jr. et al, 2005) For the first three years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks' expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1990, Starbucks became profitable and sales were growing by approximately 80%. Schultz met and exceeded his goal of reaching 125 stores in 5 years producing a total of 161 stores by 1992. By 1996 it grew to 1,015 stores...