Starbucks-Going Global Fast
A – Summary: This case was prepared in 2002, therefore, numbers and references also used at the time of the preparation. Starbucks is one of the largest chains of coffee shops in the world. Their business first started in the early 80s on Sixth Avenue and Pine Street in downtown Seattle as a tiny chain coffee shop. Then, they grew up rapidly in the 90s and spread out 5,689 outlets within 28 countries in 2002.
Being very well managed by a well seasoned management team which is known as H2O from the combination of 3 names: Howard Schultz (Chairman and Chief Global Strategist), Howard Behar (Head of North American Operations) and Orion Smith (CEO), this first chain of Starbucks was successfully popular on that time. Since it went public in 1991, the company has expanded colossally. But it also encountered many problems. It was faced with the problem that it had mounted in home and abroad. The period of the Starbucks’ success was the baby boomers in the 90s, but now it change.
The Generation X is different with before, now does not like the environment of the shop, in addition of the young generation feel out of place in the coffee shop. Once of their causes is also the price of coffee seems to be little expensive to them. Being with not much competition likes Mc Donald’s at that time, but they also faced with the competitors such as Tully’s coffee shop. Besides, they also faced with employees’ discontentment. The expensive and aggressive marketing strategy has given Starbucks market dominancy. In account of their earning $181. million in the year 2000, although sales was still growing, but it started grow in a decreasing rate. The problem is their aggressive strategy and attitude towards competitors. They not only grew rivalry with local business people but also starting lost customers. And it became so difficult to them to maintain their growth of 20% only on domestic market. Therefore, they decided to spread out overseas. The largest overseas market of Starbucks was Japan within 368 shops. Then, UK was their second biggest overseas market within 310 stores.
By the end of 2001, they started gain the new market in the Middle East. Their target is having 10,000 outlets abroad by the next 3 years. Simultaneously, they still repositioned their domestic market by adding new service, such as internet, fast food and so on. However, their largest overseas market, Japan has started be decline during 2001. Therefore, Starbucks need to readjust their strategies as well as reposition themselves to recovery and rise up their turnover from the fall. B – Discuss questions:
Q1 – Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global markets. These controllable elements are identified through the state of which country. First of all, price in Italian coffee bars prosper by serving food as well as coffee, which is an area where Starbucks struggles. Moreover, Italian coffee is cheaper than. Americans pay around $1. 5 for an espresso while it’s just 67 cents of price in northern Italia and 55 cents in the southern. On the other hand, Starbucks faced with uncontrollable elements with Japan, France and Vienna.
There was competition among rival shops in Japan as well as economic depression. In addition, in France, they met up with the political and legal bindings because of France’s arcane regulations and generous labor benefits. Besides, In Vienna, culture is the element which was bringing positive advantages in expanding their business compared to existing coffee shops here. The cause is young people are always enthusiastic about new and easily embrace the new. Q2 – What are the major sources of risk facing the company?
Discuss potential solutions. Starbucks faced with 3 major risks at domestic region. One risk is the saturation of the USA market condition. They started with just 17 coffee shops in Seattle 15 years ago but now increase amazingly to the number of 4,247 stores scattered across US and Canada. Then, it brings Starbucks consideration of the upper limit carefully in this market as a result. Another risk is starting losing customers. The major cause is customers have limited available options which satisfy their huge complex changing requirements.
The last risk is less but not least with the feeling comfortable for young generation (X). In after all, global expansion poses huge risks for Starbucks which makes less money on their overseas market because most of them are operated with local partners. Based on the risks which Starbucks faced above, there are some suggestion may help to identify the potential solution for this case: With the 1st risk, the saturation market can be overcome by focusing on international or global marketing. Focusing on increase quality of service and quality of coffee may help prevent this risk.
It seems easier to prevent the 2nd risk by increase more add-on service as well as more options, include multiple choices or mixture choices for customers. As they was facing with ominously hostile reception from its future consumer (generation X), a repositioning their coffee shops’ environmental strategy or pricing strategy by promotional event such as discount for ages, or saving Starbucks’ credit to gain the new promotional award (discount or add-on products) may help to keep this market attention. Q3 – Critique Starbucks’ overall corporate strategy.
There are mismatch between their corporate strategies and the customers’ expectation. One of their strategies, the believe that the more outlets, the more sales, they tried to increase the number of their outlets but not increase customers’ satisfaction within their product and service. Another mismatch is the no differential pricing for generation x or younger generation while their target customers are baby boomer generation. Next, although Starbucks was fully control its business in USA, but it had any related control outside the USA which leads the dependence on the franchises’ undermines the strength of is outside.
In addition, become a global brand but Starbucks’ budget for its business management was low compared with its status. Starbuck spent just only 1% of its revenue as advertisement, whereas most of the similar companies’ size spent at least 10% revenue. Furthermore, they have focused on the product concept which narrowed the attitude in marketing strategy. Besides, dissatisfied attitudes from employees for their salary within their work load cause affecting sterling service and even the coffee itself.
One more of important thing are the understanding differences between various cultural and ethnic affairs, such as Muslim dominated regions. Q4 – How might Starbucks improve profitability in Japan? According to the present cultural trend in Japan, younger generation is habit spending their time in a constructive manner. In order to increase the profitability in Japan, they should reposition their product and service to fit with the Japanese culture, especially the young generation. One more hing is Japanese are less conscious about the price, so they may consider about their pricing strategy because the culture in work, Japanese have very less time for their leisure. One of the problems of Starbucks in Japan is from the local competitors which are providing the same fare. Then, Starbucks’ market share can be easily eaten up by local brands. So, pricing strategy should be considered overall carefully. Besides, US also work busy, therefore, Starbucks can introduce the US style online system be part of Japan style, so that it can provide more convenient for Japanese customers.
Finally, Japanese youth usually lead the new fashion of their own style, so they will be attracted if Starbuck create the new style for them on their advertisement or bring the new culture, new interesting cultural campaign or entertainment campaign. In times of recessive economic, extra and colorful activities are necessary to boost up their sales. More and more flexible option service as well as increasing convenient will be helpful for improve profitability in Japan.