Starbucks Case Study

1.0 Overview of Starbucks and its business situation

Starbucks founded in 1971, is the world's leading retailer, roaster and brand of specialty coffee with coffeehouses in North America, Europe, Middle East, Latin America and the Pacific Rim.

Starbucks purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment, primarily through its company-operated retail stores. On its Web site, Starbucks runs a simple, easy-to-use store that sells coffee beans, mugs, brewing machines and not much else.

Starbucks also provide high-speed wireless Internet connections in its stores. It now offers wireless broadband Internet service throughout North America, offering T-Mobile HotSpot in the U.S. and Bell Hotspot in Canada.

Music was a natural evolution in Starbucks as it had been playing music in the stores for almost 30 years. In 2004, Starbucks barista-in-chief Howard Schultz made a big push into music business, aiming to transform the record industry. It took innovative action to connect quality music to the Starbucks Experience by launching a revolutionary in-store CD burning service at the Starbucks Hear Music™ Coffeehouse in Santa Monica, California. With this innovative service, Starbucks customers can create personalized CD compilations and burn full-length albums from a vast digital library of songs. This service is currently available in selected location in Seattle and Austin.

Starbucks executives hesitate to put their strategic overhaul into a broader context. Can Schultz and his team carry off a transformation like this? Is it really a smart move for a coffee company like Starbucks to re-imagine itself as a lifestyle-entertainment enterprise and to start by serving up music? This paper addresses this problem by using SWOT analysis, Porter's five forces model and value chain analysis. Some recommendations are provided to the management of Starbucks at the end of this paper.

2.0 SWOT Analysis

2.1 Strengths

 Global dominance

Starbucks Company is known globally by most of the people. It is a global coffee brand built upon a reputation for fine products and services. Starbucks has almost 9000 cafes in almost 40 countries. Its widespread presence provides it with widespread brand recognition and a strong customer base. Starbucks has become an extremely strong force in the global economy as more new company facilities (such as Starbucks Coffee International in Paris and Starbucks Coffee Agronomy Company in San Jose) popping up all over the world. In addition, Starbucks is able to open three to four stores a day on average, causing it to become one of the most recognized and respected brands in the world. Furthermore, Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. As a respected employer that values its workforce, it is becoming more well-known.

 Highly profitable organization

Starbucks is a very profitable organization. Starbucks has reported third-quarter net earnings of $126 million in fiscal 2005, compared to $98 million from the same period in fiscal 2004, which is a profit climbs of nearly 30% [1]. Net revenue rose 21 percent to $1.6 billion. In the United States which is the company's biggest market, revenue increased 20 percent to $219 million in fiscal 2005 due to new store openings and price increases that helped push up same-store sales 7 percent. [2] This significant rise in revenues and profits provides the company with a strong financial base and enables it to undertake new business ventures. In fiscal 2006, Starbucks forecast earnings of $1.44 per share to $1.47 per share, excluding any impact from expensing stock options [2]. As a highly profitable organization, Starbuck's asset base is so strong that they can do things others cannot do.

 Well-developed business strategy

Starbucks is good at taking advantage of opportunities to develop innovative business strategy. In the effort of bringing in new customers while retaining the existing customers, Starbucks makes use of an extensive research team to come our with creative and innovative business strategy. For instance, in spring 2004, Starbucks took innovative action to further connect quality music to the Starbucks Experience by launching a revolutionary in-store CD burning service at the Starbucks Hear Music™ Coffeehouse in Santa Monica, California. This innovative service enables Starbucks customers to sift through thousands of songs stored in a computer database to create their very own personalized, mixed-CD masterpiece. Besides, Starbucks through an agreement with XM Satellite Radio, the 24-Hour Hear Music™ XM 75 channel, featuring music programming from Hear Music, debuted to more than 2.1 million XM Radio subscribers in fall 2004.

 Strong customer loyalty

Starbucks has many years of experience in its business. Such experience is defined by what they have characterized for a long time as Starbucks really becoming this "Third Place" between home and work. Because of this experience, customers develop trust towards Starbucks, leading to strong customer loyalty. In addition, Starbucks has close relationships with their customers. They talk to their customers all the time in nature of focus groups or exit surveys. Since they own and operate their own stores, it facilitates intimate conversation with their customers without any formality. As a result, customers would have good feelings and impression towards Starbucks, leads to increase in customer loyalty.

 High Visibility Locations to attract customers

Starbucks retail stores are typically located in high-traffic, high-visibility locations. Its stores are located in a variety of settings, including airports, downtown and suburban retail centres, office buildings and university campuses. While the company selectively locates stores in suburban malls, it focuses on stores that have convenient access for pedestrians and drivers.

 Valued and motivated employees - low employee turnover

Starbuck's business model uses part time workers or partners. They offer fringe benefits to all of their employees, including medical insurance and stock options. Employees also get perks like a free bag of coffee every month. Starbucks also offers opportunities for advancement with in