Case Study of Starbucks

Topics: Coffee, Starbucks, Coffeehouse Pages: 23 (7231 words) Published: March 31, 2013
When the announcement was made in mid 2008 that Starbucks would be closing nearly three-quarters of its 84 Australian stores there was mixed reaction. Some people were shocked, others were triumphant. Journalists used every pun in the book to create a sensational headline, and it seemed everyone had a theory as to what went wrong. This case outlines the astounding growth and expansion of the Starbucks brand worldwide, including to Australia. It then shifts focus to describe the extent of the store closures in Australia, before offering several reasons for the failure and lessons that others might learn from the case.

2. Background

Founded in 1971, Starbucks' first store was in Seattle's Pike Place Market. By the time it went public in 1992, it had 140 stores and was expanding at a breakneck pace, with a growing store count of an extra 40-60% a year. Whilst former CEO Jim Donald claimed that "we don't want to take over the world", during the 1990s and early 2000s, Starbucks were opening on average at least one store a day (Palmer, 2008). In 2008 it was claimed to be opening seven stores a day worldwide. Not surprisingly, Starbucks is now the largest coffee chain operator in the world, with more than 15,000 stores in 44 countries, and in 2007, accounted for 39% of the world's total specialist coffee house sales (Euromonitor, 2008a). In North America alone, it serves 50 million people a week, and is now an indelible part of the urban landscape.

But just how did Starbucks become such a phenomenon? Firstly, it successfully Americanised the European coffee tradition - something no other coffee house had done previously. Before Starbucks, coffee in its current form (latte, frappacino, mocha, etc.) was alien to most US consumers. Secondly, Starbucks did not just sell coffee - it sold an experience. As founding CEO Howard Schultz explained, "We are not in the coffee business serving people, we're in the people business serving coffee" (Schultz and Yang, 1997). This epitomised the emphasis on customer service such as making eye contact and greeting each customer within 5 seconds, cleaning tables promptly and remembering the names of regular customers. From inception, Starbucks' purpose was to reinvent a commodity with a sense of romance, atmosphere, sophistication and sense of community (Schultz and Yang, 1997). Next, Starbucks created a 'third place' in people's lives - somewhere between home and work where they could sit and relax. This was a novelty in the US where in many small towns café culture consisted of filter coffee on a hot plate. In this way, Starbucks positioned itself to not only sell coffee, but also offer an experience. It was conceived as a lifestyle café. The establishment of the café as a social hub, with comfortable chairs and music has been just as important a part of the Starbucks brand as its coffee.

All this came with a premium price. While people were aware that the beverages at Starbucks were more expensive than at many cafés, they still frequented the outlets as it was a place 'to see and be seen'. In this way, the brand was widely accepted and became, to an extent, a symbol of status, and everyone's must-have accessory on their way to work. So, not only did Starbucks revolutionise how Americans drank coffee, it also revolutionised how much people were prepared to pay.

Consistency of product across stores, and even national boundaries, has been a hallmark of Starbucks. Like McDonald's, Starbucks claims that a customer should be able to visit a store anywhere in the world and buy a coffee exactly to specification. This sentiment is echoed by Mark Ring, CEO of Starbucks Australia who stated "consistency is really important to our customers ... a consistency in the product . . . the overall experience when you walk into a café . . . the music . . . the lighting . . . the furniture . . . the person who is working the bar". So, whilst there might be slight differences between Starbucks in...

References: AustralAsian Specialty Coffee Association, 2006. Australian Coffee Market: Key Facts for 2006.
Australian Bureau of Statistics, 2008. Cafes, Restaurants and Catering Services, Australia, Report 8655.0 for 2006-07.
Bawden, T., 2008. Starbucks reports first loss in 16 years. Times Online, 31 July. (accessed 15.08.08.).
BBC News, 2006. China central to Starbucks growth. BBC News, 14 February. (accessed 29.08.08.).
Browning, E., 2008. Starbucks hopes growth abroad will save its bottom line. ABC News, 3 1 July, (accessed 29.08.08.).
Burritt, C, 2007. McDonald 's challenges Starbucks with cheaper lattes. Bloomberg, 11 September. (accessed 29.08.08.).
Cebrzynski, G., 2008. Starbucks-dominated category wakes up and smells McD 's espresso rollout. Nation 's Restaurant News 42 (3), 1-6.
Charles, E., 2007. In the trenches: Coffee. In the Black, May, 28-31.
Clark, N., 2008. Starbucks: The brand we love to hate. Marketing, 2 April.
Coleman-Lochner, L., Stanford, D.D., 2008. Starbucks reports first loss since 1992, predicts slower growth. Bloomberg, 30 July, (accessed 29.08.08.).
Delaney, B., 2008. Starbucks to go. Guardian, 30 July, (accessed 29.08.08.).
Edwards, V., Sainsbury, M., 2008. Weak coffee and large debt stir Starbucks ' troubles in Australia. The Australian, 31 July.
Euromonitor, 2006. Starbucks Ups Expansion Plans. Euromonitor International.
Euromonitor, 2007. Starbucks Corp - Consumer Foodservice - World. Euromonitor International.
Euromonitor, 2008a. On-trade Watch: Identifying Key Growth Markets to 2012. Euromonitor International.
Euromonitor, 2008b. Company Watch: Starbucks Wakes Up and Smells the Coffee. Euromonitor International.
Euromonitor, 2008c. Coffee - Australia. Euromonitor International.
Euromonitor, 2008d. Impulse Food and Drink Channels - Coffee - Australia. Euromonitor International.
Grove, S., Fisk, R., John, J., 2000. Services as theater. In: Swartz, T., Iacobucci, D. (Eds.), Handbook of Services Marketing and Management. Sage Publications, CA, pp. 21-35.
Hollander, S., 1960. The wheel of retailing. Journal of Marketing 25 (1 ), 37-42.
Hota, M., 2008. Starbucks: brewing more than just coffee. European Case Clearing House (ECCC), 508-025-1.
Karolefski, J., 2002. Conquering new grounds. BrandChannel, 11 February. (accessed 29.08.08.).
Kiviat, B., 2008. Wake up and sell the coffee. Time South Pacific (Australia/New Zealand edition) 7(13), 52-56.
Klein, N., 2000. No Logo. Flamingo, London.
Lee, H., 2003. Japan: a nation of coffee lovers. Euromonitor International.
Lee, H., 2004. Coffee brews a future in China? Euromonitor International.
Lindhe, J., 2008. One skinny cap to go. Business Review Weekly, 7 August. (accessed 1 5.08.08.).
Lovelock, C, Patterson, P.G., Walker, R., 2007. Services Marketing: An Asia Pacific and Australian Perspective. Pearson Education, Singapore.
Martin, S., 2008. Starbucks: a study in liberal failure. Part II. Conservatism Today, 29 July, (accessed 29.08.08.).
Mescall, J., 2008. Starbucks in Australia: where did it go wrong? Unleashed, 7 August. (accessed 29.08.08.).
Mintz, J., 2008. Starbucks closing 600 stores in the US. International Business Times, 1 July, (accessed 14.09.08.).
Muthukumar, R., Jain, S., 2008. Starbucks suffers: Schultz returns. European Case Clearing House (ECCC), 308-152-1.
Palmer, D., 2008. Starbucks: what went wrong? AFN Thought for Food, 31 July. (accessed 29.08.08.).
Schultz, H., Yang, D.J., 1997. Pour Your Heart into It: How Starbucks Build a Company One Cup at a Time. Hyperia Publishing, New York.
Shoebridge, N., 2008. Local palate bucks another US retailer. The Australian Financial Review, 4 August, (accessed 15.08.08.).
Uncles, M.D., 2008. Aroma Australia Pty Ltd goes to Japan. In: Schiffman, L., Bednall, D., O 'Cass, A., Paladino, A., Ward, S., Kanuk, L. (Eds.), Consumer Behaviour, fourth ed. Pearson Education Australia, Australia, pp. 584-588.
Wailes, N., 2008. Taste of defeat for the mugs from Starbucks. Sydney Morning Herald 31 (July).
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Starbucks Case Study Essay
  • Starbuck Case Study Essay
  • Case study: Starbucks Coffee Essay
  • Starbucks Case Study Essay
  • Essay about Case Study 1 Starbucks
  • Starbucks Case Essay
  • Essay about Starbucks Case Study
  • Starbucks Case Study 3 Essay

Become a StudyMode Member

Sign Up - It's Free