Starbucks’ Strategy

What are some of the decision factors that Starbucks assess? Starbucks' strategy for expanding its retail business is to increase its market share in existing markets and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. In support of this strategy, the Company opened 647 new stores during the fiscal year end in September of 2001. At fiscal year end, Starbucks had 2,971 Company-operated stores in 38 states, the District of Columbia and five Canadian provinces (which comprise the Company-operated North American retail operations), as well as 252 stores in the United Kingdom, 25 stores in Thailand and 18 stores in Australia (which comprise the Company-operated international retail operations). Company-operated retail stores accounted for approximately 84% of net revenues during fiscal 2001.

Starbucks Specialty Operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop, and dine, by establishing relationships with prominent third parties that share Starbucks' values and commitment to quality. These relationships take various forms, including arrangements with foodservice companies and retail store licensing agreements for North American locations such as grocery channel licensing agreements, warehouse club accounts, international retail store licensing agreements, direct-to-consumer market channels, joint ventures, and other initiatives related to the Company's core businesses.

The Company sells whole bean and ground coffees to warehouse club chains. As part of its agreement with Starbucks to market and distribute to the grocery channel, Kraft also distributes Starbucks products to warehouse club stores. Revenues from warehouse club accounts accounted for approximately 13% of specialty revenues in fiscal 2001. The Company makes fresh Starbucks coffee and coffee-related products conveniently available via mail order and on-line. Starbucks publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees, certain food items and select coffee-making equipment and accessories, and the Company maintains a Website at www.starbucks.com with an on-line store that allows customers to purchase coffee, gifts, and other items via the Internet. The Company has several other initiatives related to its core businesses that are intended to enhance the customers' experience at Starbucks retail stores. For example, Starbucks has wireless Internet access in its retail stores, as well as marketed a selection of premium tea products.

The Company has two non-retail domestic 50-50 joint ventures. The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company, a division of PepsiCo, Inc., develops and distributes ready-to-drink coffee-based products. By the end of fiscal year, the “joint venture” was distributing bottled Frappuccino coffee drink to approximately 200,000 grocery food chains, convenience and drug stores and other locations throughout the United States and Canada. The Company has a joint venture with Dreyer's Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2001, the joint venture was distributing a variety of ice cream and novelty products to over 20,000 grocery food chains throughout the United States.

What role does the Chinese government play in Starbucks operations in China?

Since China joined the World Trade Organization (WTO), Starbucks’ strategy has not changed. However, the entrance into the Asian market did have a large indirect impact on Starbucks. This allowed the entry of other companies and other investors, which brought in more foreigners into China, and more consumers of Starbucks’ coffee. Studies show that most of its customers are foreigners and businesspersons, who come the most frequently of all...