Starbucks Coffee Going global fast
Presentation Contents • Company Profile • Company Performance • SWOT & Industry PEST Analysis • Profile of USA, Japan, and China Operations • Conclusion • Q&A
Company Profile Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees worldwide. It offers brewed coffees, Italian-style espresso beverages, cold blended beverages, various food items, and a selection of premium teas, as well as beverage-related merchandise and equipment, through its retail stores. In addition, Starbucks Corporation produces and sells ready-to-drink beverages, which include bottled beverages, espresso drinks, chilled cup coffees, and ice creams. Its brand portfolio includes Starbucks, Seattles Best Coffee, Tazo, Frappuccino, Starbucks DoubleShot, Starbucks Discoveries, Starbucks super-premium Tazo Tea, and Starbucks super-premium. As of September 27, 2009, the company operated 8,800 retail stores. Starbucks Corporation was founded in 1985 and is based in Seattle, Washington.
Strengths • Well-recognized Brand • Having made public since 1982, The Starbucks coffee brand is the most well recognized coffee brand in the world. With its strong brand awareness from its consumer, Starbucks coffee even has its own loyal consumers. • Branches Everywhere • The expansion of so-called blanketing the area with stores proven to be succeeded and has made this coffee shop ubiquitous and has increased the level of satisfaction of its consumers.
Strengths • Attractive, Comfortable and Entertaining Stores • Well-equipped with comfortable chairs, wireless internet connections, and even selection of music, make Starbucks as one of the coziest hangout place for having a discussion with friends, searching for inspiration a and even rendezvous spot. • Innovative Ways to Attract Consumers • Innovations on its products including Technology Innovations, ex: Starbucks Express, new varieties of coffee and pastries each month and also have a special service such as the ability to burn your own music CD from the sample online music you hear in the counter.
Weaknesses • Expensive Price • Being positioned as a premium coffee brand, an average price of a cup of Starbucks coffee is considerably expensive. $3 for a cup of coffee will make its price-sensitive buyer will look for other brand that is less cheaper but offer the same value (ex: Coffee Bean & Tea Leaf, 85 degree). • High Employee Turnover • Nowadays, working in Starbucks has not been the greatest experience ever again. Since the pay of the workers doesn’t come close with the daily workload they have to handle. This thing will also affecting on Starbucks reputation. With their premium brand positioning, they supposed to have delivered its employee a better salary.
Opportunities • Strong brand image in customer mind about coffeeshop • Fastest global brand – Best Global Brand ( 90th place in 100 Global Brand Rank 2009 )
Opportunities • Operates 1,200 stores build overseas – plenty room to grow the business • Opening stores in Vienna, Zurich, Madrid, Berlin, Jakarta, Mexico, Puerto Rico - new opportunities to expanding to other countries and new target market
Threats • Target of terrorism, as a symbol of free-market capitalism. • Self cannibalism – because so many stores close together • Experience saturated and mature market in U.S • Growing competition in rival coffee chain. • Demographic shift – baby boomer ’90 to future consumers
Industry PEST Analysis • Political Influences • Relationships between coffee producing nations and US • State & Local government controls • Economic Influences • Constant demand for food and beverages • Changes in disposable income could influence purchase levels • Social Influences • Consumer preferences could shift from coffee to other beverages • Technological Influences • Use of technology can improve operational efficiencies
USA Operations • Starbucks Corporation is an international coffeehouse that has built one of the world's most powerful and recognizable brands upon high-quality coffee and the unique "Starbucks Experience." • Starbucks has sought to capitalize on its growing popularity through expansion; the addition of over 1,500 stores in just over a year brought its total store count to over 16,600 in 2008. In fiscal 2008, the company's stores (retailer and licensed) generated US$ 10.4 billion in revenue
USA Operations • Self-Cannibalization Risk An additional challenge facing Starbucks may be its own dominance - with a Starbucks on every street corner in some parts of its core U.S. market and an average of 8.5 new locations opened weekly in the country.
USA Operations • Self-Cannibalization Starbucks percentage of new stores growth In 1999 it had 2,000 stores but in 2007 it was pushing a 10,000 company owned stores mark. Let’s put this in perspective: in 1999 Starbucks opened 447 stores - 1.8 stores per working day; in 2007 that number more than tripled to 1,403 stores a year - 5.5 stores per working day.
USA Operations Economic Recession With the current economic conditions, Starbucks faces significant headwinds. While past concerns over commodities prices, particularly coffee beans and milk, have subsided, a shift in consumer spending triggered by a global economic recession may decrease sales in the coffeehouse market in general.
USA Operations Starbucks has set the following financial and operational targets for fiscal 2010: • The company is targeting revenue growth in the low-to-mid single digits, driven by modestly positive comparable store sales, a 53rd fiscal week, and approximately 300 planned net new stores. • Starbucks is targeting approximately 100 net new stores in the U.S. and approximately 200 net new stores in International markets. Both the U.S. and International net new additions are expected to be primarily licensed stores.
USA Operations • Starbucks outlook on the U.S. operating margin has further improved; the company is now targeting full-year operating margin improvements for both the U.S. segment and the International segment (excluding restructuring charges) of 200 to 250 basis points. The CPG segment margin is expected to remain in its current range of 35% to 40%. The cumulative result of these expected margins is a consolidated non-GAAP operating margin that is anticipated to reach double digits. • Capital expenditures are expected to be in the range of $500 million to $550 million. Approximately half of this amount will be allocated to renovations and store equipment upgrades, one quarter to systems upgrades, and one quarter to new stores and other capital investments. • Starbucks expects cash flow from operations to be approximately $1.4 billion, and free cash flow of approximately $900 million.
Japan Operations • For the Japanese, tea is a traditional bracing drink during a day, although it does not mean that there is no demand for coffee. Japan is the 3rd biggest importer of coffee in the world(2008) => Japan a good market for coffee industries • Japan approach to Japanese’s life was a huge challenge for Starbucks. Different tastes, cultural like smoking and Japanese fluctuating economy made Starbucks to face real problems
Japan Operations The trend for smoking in Japan is well known. Many people smoke and expect to be able to smoke in the restaurants, pubs and coffee shops. Starbucks became a very popular place among non-smoking females who wanted to drink their coffee in peace away from smoke and crowd • Moreover, the policy of Starbucks was to be everywhere and do not let the customer to cross the street. What is more, people were surprised by the amount and location of Starbucks’ stores. The stores are located very close to themselves
Japan Operations • The Japanese perfection and hard-working, a huge market potential for coffee in Japan. Big population and fast lifestyle attract the Japanese to drink more coffee instead of tea which is already well known. Coffee company has to be well prepared and offer something more than just an average taste coffee • Starbucks had an experience on other non American markets and is known worldwide. The expansion was quite risky, Starbucks assumed that they do not have to localize Starbucks and its goods on the Japanese market
Japan Operations Starbucks Japan's fiscal Q1 pretax profit (quarter ended June 30) rose 9.4% to 1.32 billion yen ($11.1 million), driven mostly by expanded food sales. Its food menu was updated to match local tastes better, and also to capitalize on the fact that 80% of customers consume in-store, whereas the same percentage of customers take-out in the U.S. The main reason for Starbucks Japan's difficulties is due to intense competition coming not only from rival coffee shops, but also from convenience stores and vending machines. Japan is Starbuck's second largest market with 630 stores and plans for 1,000 by 2010
Japan Operations A "local" strategy it implemented last year has paid off nicely so far but why ruin a good thing by putting pressure on the firm to expand at that rate compared to its 50-75 new store range over the past two years. Starbucks Japan currently has 624 stores.
Japan Operations • The market is not quite saturated and the brand continues to grow. • Besides the introduction of Japanese-style drinks, the company has significantly expanded its food offerings, including a special line of Wellness sandwiches.
Japan Operations • Moreover Starbucks may be on the way to extending itself into Japan's high-end cafe market. • Opening of a luxury Starbucks Cafe in Tokyo's Roppongi Hills is imminent, and that the posh new shop is part of a Japan-only effort to strength the brand's competitiveness.
China Operations Starbucks eyes China as next major market • China, tea-drinking country will be 2nd home market for Starbucks after U.S. It's going to be a huge opportunity for Starbucks. • The first Starbucks store located in mainland China Beijing in Jan of 1999 through a licensing agreement with Mei Da Coffee Co.Ltd. • It has also opened in the China cities such as Changzhou, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Hangzhou, Kunshan, Nanjing, Ningbo, Qingdao, Shaoxin, Shenyang, Shenzhen, Suzhou, Tianjin, Wuxi, Wuhan and Xi’an .
China Operations • Customers in China have embraced the high-quality arabica coffee, personalized handcrafted beverages and the unique Starbucks Experience offered in Starbucks stores. And Coffee represents change in a new western lifestyle and it’s becoming more popular for the young people in China. • Starbucks shares our coffee passion and expertise with customers in China by encouraging them to sample, savor and enjoy its premium coffee. • At the end of the second quarter of fiscal 2009, there are more than 690 Starbucks locations throughout Starbucks Greater China, which includes the People’s Republic of China, Hong Kong, Macau and Taiwan.
China Operations Starbucks will see China become the company's next major market after the United States in the near future. "It's absolutely very, very important. This has really become our second home market," said Wang Jinlong, the company's head for Greater China. Wang said profit contributions from the rapidly growing Chinese market more than doubled in 2009. Starbucks Chief Executive Howard Schultz said earlier this month he saw the potential for thousands of stores in China. Starbucks, whose current 2010 forecast calls for 100 net new stores in the United States and around 200 net new international cafes, has nearly 700 cafes in China. Starbucks also raised its financial forecasts for 2010, a sign a year-long turnaround effort is boosting margins and putting it back on track for growth. Source: Reuters Nov 24, 2009
Conclusion Starbucks is going to be a larger company 3, 5, and 10 years from now. The main reason Starbucks will grow is because coffee and tea are both enormous markets, domestically and globally. Second, Starbucks has low penetration rates in terms of the number of locations it has, especially in the BRIC countries. Finally, Starbucks has nice potential for growth in packaged coffee, ready to make beverages, and the instant coffee markets, especially internationally. http://seekingalpha.com/article/172178-why-starbucks-will-grow