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Starbucks: Past, Present & Future July 2010 Brad Buchanan

Starbucks: Past, Present & Future July 2010 Brad Buchanan. Starbucks – Strategic History. Over the last 40 years, Starbucks has enjoyed explosive growth and become one of the preeminent brands in the world through execution of a series of successful strategies. 1971. 1987. 1993. 2000.

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Starbucks: Past, Present & Future July 2010 Brad Buchanan

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  1. Starbucks: Past, Present & Future July 2010 Brad Buchanan

  2. Starbucks – Strategic History Over the last 40 years, Starbucks has enjoyed explosive growth and become one of the preeminent brands in the world through execution of a series of successful strategies • 1971 • 1987 • 1993 • 2000 • 2007 • Small, Private Company • 1971: founded • 1982: hired Howard Schultz • 1984: Schultz convinces to open a 6th “test store” to test out the sale of products • 1987: Schultz and his Il Giornale chain buyout the 6 Starbucks stores and rebrand them as Starbucks • Going Public • 1987: with 17 stores (Seattle, Vancouver, Chicago), Schultz announces ambitious growth of 125 stores in 5 years • 1988: begin to branch out of stores and open a mail-order business • 1991: expand into California • 1992: successful IPO, 167 stores total • Strategic Growth & International Expansion • 1993: Barnes & Noble partnership • 1994: purchase of Coffee Connection, gaining 15 new markets; now have 425 stores total • 1995: PepsiCo partnership to distribute Frappucino and broaden customer base • 1996: 1st International stores open in Tokyo in partnership with Sazaby • 1998: expand into the U.K. with the acquisition of the Seattle Coffee Company • 1998: buys Tazo Teas, a premium tea company to broaden the offerings in-store • 1999: extends the Starbucks brand into grocery channels across the U.S. through licensing agreement with Kraft Foods, Inc. • 1999: partner with Conservation International to promote sustainable coffee-growing practices; now have 2,498 stores across the world • Growth At All Costs • 2000: Howard Schultz transitions from CEO to chief global strategist; Orin Smith promoted to President and CEO; 3,501 stores • 2003: Acquires Seattle’s Best, gets access to their wholesale contracts with about 12,000 grocery stores and food service accounts; 7,225 stores • 2005: Orin Smith retires, Jim Donald takes over and focuses on: growth to 30,000 stores, music distribution, and food offerings; 10,241 stores • 2006: promotional partner for "Akeelah and the Bee“, which many see as the commercialization of the brand; 12,440 stores • Collapse and Reinvention • 2007: memo from Schultz is leaked that for the 1st time admits the "watering down" of the company; 15,011 stores • 2008: Howard Schultz replaces Jim Donald as President and CEO amidst a free-fall in the stock price and announces plans to close 600 stores • 2008: announces a series of bold changes to re-invent the business, Clover Brewing System, Pike Place Roast, less focus on entertainment; 16,680 stores • 2009: rollout VIA instant coffee, revamps food offerings; 16,635 stores

  3. Starbucks – Strategic Missteps The missteps that occurred in the last 5 years led to a decline in sales and ultimately earnings growth • Overexpansion • “The big issue I think was that growth is not a strategy, it is a tactic, and if growth becomes a strategy I don't think it is an enduring one. I think growth covers up mistakes.“ (H.Schultz interview with The Guardian, 1/21/10) • Diluted the brand by losing control over quality of the in-store experience • Drop in operating margin from 20.2% in ‘07 to 16% in ’08 • Underestimating Competition • Dunkin Donuts and McDonalds each aggressively launched revitalized brands during 2006-2008 • Their brand was focused on a lower cost, but similarly priced product • Lack of Focus • Shift began to market other items more aggressively such as equipment, movies, and music • Management was slow to react to the economic downturn in 2008 The time has come to clearly define core values and chart a course for the future…

  4. Starbucks – What It Isn’t What Starbucks isn’t… X • An entertainment conglomerate • Forays into movies and increasing focus on producing music have directed attention away from the core in-store experience X • A fast-food retailer • Sales are sluggish and much of the sandwich offering is mediocre • Focus on food as amargin leader rather than trying to cater to every possible need X • On every corner • Over-expansion has diluted the brand and created inconsistency in quality • Better leverage other brands (Seattle’s Best, VIA) to achieve the same level of penetration without the capital investment

  5. Starbucks – What It Is What Starbucks IS… • A “third place”, • after work and home • "We strive to create a welcoming environment for all of our customers. We do not have any time limits for being in our stores, and continue to focus on making the Third Place experience for every Starbucks customer” (cnet.com, 8/15/09) • Provider of high-quality beverages across all brands • “The reframed Starbucks business proposition will deliver great coffee to every customer, in every format, and in every place they want it” (H.Schultz, 2010 Annual Meeting, 3/24/2010) • Socially conscious • "Now is a time to invest, truly and authentically, in our people, in our corporate responsibility and in our communities. The argument - and opportunity - for companies to do this has never been more compelling.“ (H.Schultz, Fortune, 1/20/2009) • Rewarding place to work • “You can't expect your employees to exceed the expectations of your customers if you don't exceed the employees' expectations of management. That's the contract.” (Pour Your Heart into it: How Starbucks Built a Company One Cup at a Time) • A leader in innovation • “Our future lies in our ability to innovate, to be forward-thinking and nimble” (H.Schultz, 2009 Annual Report))

  6. Starbucks – The Future Changes announced over the last 18 months have started to show results: 2Q10 revenues were up 8.6% after a 4.1% increase in 1Q10; however, there is still more work to do… Rekindle In-Store Emotional Attachment Quality “Third Place” Socially Conscious Workplace Innovation Seattle’s Best Rebranding VIA Rollout Show You Care • Rollout of concepts such as the 15th Avenue Coffee & Tea • Introduce specialty coffees and alternative beverage selections • Continue to embrace social media; encourage “twitter-ups” at Starbucks locations as traffic drivers • Partnership executed with Subway and Burger King, expand to other chains • Wholesale distribution to mass market: stadiums, convention centers, kiosks, vending machines • Continue to rollout to retailers and grocery stores • International expansion • New flavors • Rollout special 401k bonus if targets are exceeded; reward employee loyalty for sticking it out • Continue to demonstrate and build upon recycling programs and other environmentally friendly initiatives

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