Starbucks, important information for a strategic plan
Starbucks, originally based in Seattle, was established in 1971 and today with more than 6,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim, Starbucks Coffee Company established itself as the dominant and most aggressive retailer in the coffee house segment. The company has transformed a simple beverage into a lifestyle accessory with as much elegance as the latest fashion (Starbucks.com). It offers whole bean coffees, espresso beverages, confectionery and bakery items and equipment in its retail stores. The retail strategy has been to put a coffee shop on every corner and to make fresh-brewed coffee by selling only the highest-quality products and charging a premium price. However, the product mix has changed significantly over the years, with beans accounting for about 15% of the chain's sales. Meanwhile, Starbucks is expanding its offerings with a line of ice cream for supermarkets and a joint venture with Pepsi Cola to market, frappuccino. The quality of the product has attracted a loyal and growing following among consumers.
Starbucks enjoyed phenomena growth; net sales for fiscal year 1996 have rocketed to $696 million. This marks the ninth consecutive year that Starbucks revenue has increased by 50% or greater (Starbucks.com). The company's objective is to establish Starbucks as the most recognized and respected brand in the world. To achieve this goal, the company plans to continue to rapidly expand the business through new distribution channels. The US coffee market is considered saturated, with bigger chains facing threatening competition among themselves and also from smaller coffee bars. Additionally, the increase of coffee costs lead to lower margins, intensifying competition in what has become a crowded market. Recognizing this, Starbucks has turned its attention to foreign markets for continued growth, especially the Asia-Pacific Region (Starbucks.com). Through joint ventures, licenses, and company-owned operations, Starbucks had 1,532 coffee houses in 22 markets outside North America. The company had expanded rapidly across the world since it had set up its first overseas store in Tokyo in 1996. Additionally, Starbucks announced major plans for Latin America in February 2002. It indicated that it would set up 900 stores in Latin America by 2005 (Starbucks.com). But, the trouble is, Starbucks is loosing money to operate their overseas stores. In order for Starbucks to keep the business running, they must develop a strategic plan to turn the oversea' business around, plus, determine new ways to improve the business inside of US. IDENTIFICATION OF MAJOR PROBLEMS AND ISSUES Overall Problems Starbucks' overall problems include: the saturated coffee market inside US, and oversea stores that have generated net losses. At the same time, the stock performance fluctuated due to investors who were not confident with Starbucks' growth potential. The charts below showed that after 1999, not only the overall net income was decreased; additionally, the sales were decreasing as well (Table-1& Chart-1). In response to the losses generated by the oversea stores, Starbucks bought out partners in Swiss and Austrian markets and they closed six unprofitable stores in Israel and cut international expansion by 50 stores. However, Starbucks' sales and net earnings were still below the forecasting figures, which were reflected by their stock price as indicated in chart-2 (finance.yahoo.com). (chart) Underlying Causes " Competition was the major cause for Starbucks losing money on their overseas stores: o Competition existing inside US: Pea's Coffee & Tea, Seattle's Best Coffee etc.Europeans prefer a different blend of coffee. France has sidewalk cafes, Vienna has grand coffeehouses, and Italy's high-octane espresso bars, have made an art of coffee drinking. The British have long been heavy tea drinkers, plus the...
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