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STARBUCKS $40 Million Investment

STARBUCKS $40 Million Investment. Presented by: NDKConsulting Nina Tran - Dianisha Hernandez - Kuo Jiang. Agenda. 1. Understanding the Problem 2. Investigative Approach 3. Fact-finding and Analysis 4. K ey Preliminary Findings 5. Financial Analysis 6. Summary 7. Recommendations

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STARBUCKS $40 Million Investment

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  1. STARBUCKS$40 Million Investment Presented by: NDKConsulting Nina Tran - Dianisha Hernandez - Kuo Jiang

  2. Agenda • 1. Understanding the Problem • 2. Investigative Approach • 3. Fact-finding and Analysis • 4. Key Preliminary Findings • 5. Financial Analysis • 6. Summary • 7. Recommendations • 8. Implementation Timeline

  3. Understand Investigate Understanding the Problem Analysis Findings STARBUCKS BACKGROUND • Owns close to 1/3 of America’s coffee bars, more than its next 5 biggest competitors combined • Serves 20 million unique customers in well over 5000 stores around the globe and is opening on average 3 new stores per day • Spends almost nothing on advertising with North American marketing consisting primarily of point-of-sale materials and local-store marketing • 11 consecutive years of 5% or higher comparable store sales growth • Value Proposition: highest quality coffee, “customer intimacy” service, and ambient lounging environment • Believes “Partner satisfaction leads to customer satisfaction” • Has the lowest partner turnover rate of 70% compared to industry average of 300% • Partner satisfaction rate consistently in the range of 80% to 90% range • Controls as much of the supply chain as possible - works directly with growers, oversees custom-roasting process, and controls distribution to retail stores around the world Financials Summary Recommendations Timeline

  4. Understand Investigate Analysis Findings PROBLEMS • Decreasing customer satisfaction • Falling perception of Value Proposition • Not the highest quality coffee • Only 34% of new customers and 51% of established customers believe Starbucks is a high quality brand • Very little image and product differentiation between Starbucks and smaller coffee chains • Lack of strategic marketing group • Market- and customer- related trends/data are not used in marketing decisions • Lack of product consistency • Inconsistent “customer intimacy” service • Lack of service consistency • No CRM database, manages CR one customer at a time • Lost value in ambient lounging environment • Dramatic expansion of its customer base to now include new customers not in its original target market • Current Perception: • Increasing perception, 53% to 61%, that Starbucks only cares about money • Increasing perception, 48% to 55%, that Starbucks only cares about building more stores • Self-cannibalization of at least 1/3 of Starbucks stores everyday due to expansion strategy Financials Summary Recommendations Timeline

  5. Understand Investigate Investigative Approach Analysis "Whenever we have a problem store, we almost always find either an inexperienced store manager or inexperienced baristas. Manager stability is key - it not only decreases partner turnover, but it also enables the store to do a much better job recognizing regular customers and providing personalized services. So our goal is to make the position a lifetime job.“ Findings Financials Summary Recommendations Timeline

  6. Understand Investigate Analysis Findings OBSERVATIONAL DATA - 1/5 Financials Summary Recommendations Timeline

  7. Understand Investigate Analysis Findings OBSERVATIONAL DATA - 2/5 Financials Summary Recommendations Timeline

  8. Understand Investigate Analysis Findings OBSERVATIONAL DATA - 3/5 Financials Summary Recommendations Timeline

  9. Understand Investigate Analysis Findings OBSERVATIONAL DATA - 4/5 • Overall Environment: very pleasant • Pleasant background music • AC at appropriate temperature • Internet access easy to gain • Store, counter and restrooms are clean • Tables are not cleaned after a customer leaves • Open room causes conversations to travel - need headset to block out noise • Lack of Consistency: • Baristas - Some baristas are very friendly and knowledgeable while others are indifferent, unknowledgeable and not customer-oriented • Non-machine drinks - Some drinks are too strong, too weak, too hot, not warm enough, have less ice, taste different, etc. • Drive-thru orders - not always accurate • 3 minute standard - not always met • Condiment Counter- some locations leave condiments on the counter while other locations do not. Not enough milk dispensers during rush hour • Location-oriented issues– see next slide Financials Summary Recommendations Timeline

  10. Understand Investigate Analysis Findings OBSERVATIONAL DATA - 5/5 • Location-oriented Issues Financials Summary Recommendations Timeline

  11. Understand Investigate Fact-finding and Analysis Analysis Findings Financials Summary Recommendations Timeline

  12. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  13. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  14. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  15. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  16. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  17. Understand Investigate Key Preliminary Findings Analysis Findings Financials Summary Recommendations Timeline

  18. Understand Investigate Financial Analysis Analysis Findings • Ratios from 1998 to 2002: • Gross margin = Revenue-COGS / Revenue Financials Summary Recommendations Timeline

  19. Understand Investigate Analysis Findings GROSS MARGIN Financials Summary Recommendations Timeline

  20. Understand Investigate Analysis Findings CUSTOMER LIFETIME VALUE Financials Summary Recommendations Timeline

  21. Understand Investigate Analysis Findings BREAK EVEN ANALYSIS Financials Summary Recommendations Timeline

  22. Understand Investigate Analysis Findings BREAK EVEN ANALYSIS EXHIBITS Financials Summary Recommendations Timeline

  23. Understand Investigate Summary Analysis Findings Former Positioning • Starbucks competitive positioning focused on its Value Proposition of highest quality coffee, customer intimacy service and ambient lounging environment. Starbucks was the “third place” separate from home and work. Re-evaluated Positioning • Due to the dramatic expansion of the customer base, Starbucks needs to re-evaluate its positioning to focus on the more important of the three aspects: highest quality coffee. In addition to highest quality coffee, the new target market seeks new technology, a meeting place, and a place to study. There is an added emphasis on quick and accurate service versus intimacy and an ambient lounging environment. Financials Summary Recommendations Timeline

  24. Understand Investigate Analysis Findings Financials Summary Recommendations Timeline

  25. Understand Investigate Recommendations Analysis Findings Financials Summary Recommendations Timeline

  26. Understand Investigate STORE LAYOUT MODIFICATIONS Analysis Findings Financials Summary Recommendations Timeline

  27. Understand ADOPT CRM TECHNOLOGY Investigate Analysis Findings Financials Summary Recommendations Timeline

  28. Understand Investigate Implementation Timeline Analysis Findings Financials Summary Recommendations Timeline

  29. Appendix

  30. Appendix

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