Posted: September 16th, 2017

Starbucks Corp in Consumer Foodservice (USA)

STRATEGIC DIRECTION
¦ After essentially inventing the channel, Starbucks has become the leading specialist coffee shop brand in the US with a value share of 60% in 2013. The company closed hundreds of locations during the recession but reversed tactics in 2011, returning to outlet expansion and launching a number of new initiatives intended to drive traffic throughout off-peak dayparts (including lunchtime and late afternoons) and boost average sales.
¦ The brand continued pursuing expansion in 2013, adding up to 315 new locations in the US throughout the year. Starbucks also purchased Evolution Fresh in 2011, a fresh juice brand that it plans to leverage into a national footprint of juice/smoothie bars. Starbucks opened its first Evolution Fresh outlet in California in March 2012. The company also purchased Teavana tea shops and La Boulange Bakery in 2012, further upgrading its non-coffee restaurant components.
KEY FACTS
Summary 1 Starbucks Corp: Key Facts
Full name of company: Starbucks Corp
Address: 2401 Utah Avenue South, Seattle, WA 98134, USA
Tel [+1 (206) 447 1575
Fax: +1 (206) 447 0828
www: www.starbucks.com
I
Activities: Specialist coffee shops, juice/smoothie bars
Source: Euromonitor International from company reports, company research, trade press, trade sources
Summary 2 Starbucks Corp: Operational Indicators
2011 2012 2013
Net sales US$11,700.4 million US$13,299.5 million US$14,892.2 million
Net profit/(loss) US$1,728.5 million US$1,997.4 million (US$325.4 million)
Number of employees 149,000 160,000 200,000
Source: Euromonitor International from company reports, company research, trade press, trade sources
COMPANY BACKGROUND
¦ Starbucks Corp is a publicly-held company based in Seattle, Washington, US. The company operates a large chain of specialist coffee shops and is the dominant player. It also operates a smaller chain of specialist coffee shops under its Seattle’s Best Coffee, which it also sells wholesale to other foodservice concepts (including Subway and Burger King) to be sold in fast food outlets. In the US, Starbucks has become synonymous with the idea of specialist coffee shops, and the company has a growing international presence as well.
¦ More recently, Starbucks Corp also entered juice/smoothie bars with its Evolution Fresh brand. The brand had only one outlet in operation due to being opened in March 2012, but the company has expressed plans to build a national footprint over the long-term. The company continued its ambitious expansion plan by purchasing both Teavana branded tea shops and La Boulange Bakery. For the former, the company plans on expanding these shops throughout the nation. In terms of La Boulange, Starbucks will use its baked goods to replace its current offerings starting in 2013.
¦ In 2010, the company embarked on a mission to renew its focus on the customer experience, seeking to pay special attention to service, beverage quality and store appearance. Starbucks sought to redefine its place as a coffee specialist, with an improved focus on bringing high-quality coffee to the US. It continues to promote its stores as a “third place” – a location between home and work (or school),
where consumers can relax or spend time with friends. While US consumer foodservice has witnessed an expanding number of outlets with drive-through locations, Starbucks’s emphasis on being a “third place” remains an integral part of its efforts to expand its penetration. Starbucks outlets in the US typically feature soft, muted tones and a variety of seating options, from communal tables to lounge- style couches and chairs. Outlets also offer free Wi-Fi to those with laptop computers or other internet- enabled devices.
¦ Starbucks expanded upon this premium experience through a new experiment in 2012 in which the company began to serve select beers and wines alongside its own interpretations of classic appetisers after 16.00hrs in certain locations. Titled Starbucks Evenings, the programme is not only an expansion into a daypart that has been weak for the company, but is a continued commitment to the “third place” theme, attracting singles looking to read or work with a glass of wine, or groups of people looking to share a few appetisers and drinks in a smart and familiar space.
¦ As of mid-2014, 12 million Starbucks customers in North America had downloaded the Starbucks mobile ordering app, accounting for 15% of total transactions. Starbucks likely believes that mobile ordering is the payment platform of the future, and it is anxious to be ahead of the curve.
¦ Almost half of domestic Starbucks outlets have drive-throughs, and more than half of the new stores planned to open in 2014 will have drive-throughs. In late 2012, Starbucks-owned chain Seattle’s Best Coffee tested a new drive-through only format, and then opened several drive-through only units in 2013. The 600 sq ft units, originally tested in Seattle, are claimed to leave a smaller ecological footprint while still offering the same quality coffee and food as eat-in units, in addition to being highly profitable with low overheads. McDonald’s has reported in the past that more than half of its US value is derived from drive-throughs, indicating the potential benefits this service can provide.
¦ In addition to participating in consumer foodservice, Starbucks Corp sells branded products through various retail channels, including within its own network of stores and in grocery stores and mass- market retailers. The company added many products to its consumer packaged goods line over the review period, including branded K-Cup products for use in single-brew coffee machines, Via instant coffee and, most recently, Evolution Fresh juice blends. The company has also expressed plans to make further forays into greater health and wellness, though it had yet to release specifics as to which brands or products at the end of the review period.
SUPPLIERS
¦ Starbucks roasts its own coffee, which is ground, brewed and served at its outlets. Both company- owned and franchised locations use Starbucks as the sole provider of coffee for their beverages. Starbucks Corp, in turn, sources its coffee from a variety of growers around the world. It is known for its role as the largest buyer of fair trade coffee in the world.
¦ The company also roasts coffee for its Starbucks brand, which is then sold as a consumer packaged product at retail locations throughout the country. In addition, the company roasts coffee for its Seattle’s Best Coffee brand, which is available at retail locations as well. Evolution Fresh products are available mainly in independent retail outlets, although they can be found in larger chains such as 7-Eleven and various large, regional grocery brands.
COMPETITIVE POSITIONING
¦ Starbucks’s share in specialist coffee shops declined throughout much of the review period, as the brand suffered growing competition from lower-priced players. When the recession hit, many consumers dropped their daily Starbucks habit, opting instead to brew coffee at home or purchase from other outlets, including local independents and fast food chains. Its own retail business, while helpful for the company, has also helped cannibalise its foodservice share, as consumers can now just brew their favourite Starbucks roast in their own home.
¦ Furthermore, many fast food players realised specialist coffee shops were stealing their breakfast traffic and began improving their coffee offerings to entice customers back. McDonald’s McCafe programme has been incredibly successful selling espresso-based beverages at lower prices than Starbucks, and the brand was quickly followed by other fast food players such as Dunkin’ Donuts and Burger King. While Starbucks does benefit from this trend through partnerships with various fast food
brands that sell Seattle’s Best Coffee, these are typically licensed deals and therefore result in relatively small revenue streams.
¦ To counter this rising competition, Starbucks used a number of strategies, including adopting an even more premium positioning with new coffee roasts and high-end brewing techniques. Starbucks now offers pour-over coffee in some locations during certain hours, capitalising on a gourmet trend that has become popular among independent coffee shops. The technique is time-consuming and involves hand-brewing by baristas, adding an air of personalisation and indulgence to the consumer experience.
¦ Starbucks also implemented a number of initiatives designed to drive traffic throughout the day rather than just during peak breakfast hours. The brand launched Bistro Box lunches in July 2011, low-calorie meals made with fresh, healthy ingredients. It also launched a line of miniature desserts made to be paired with beverages and encourage higher average checks. The line includes miniature brownies, pies, cupcakes and bites of frosted cake served on a stick, each of which is less than 200 calories and sold for around US$2. The line has been very successful, appealing to both those consumers looking to watch their calories and those looking to add an indulgent treat to their morning coffee or afternoon snack. Finally, the brand experimented with “Happy Hour” promotions, designating a few hours during the afternoon in which consumers could purchase blended frappuccino drinks at half price. The Starbucks Evenings roll-out was the next step in this daypart expansion, and proved successful enough after experimentation to be implemented nationwide at the very end of 2012.
¦ While Starbucks maintains a sizeable lead over its chained competitors, it still faces significant competition from independent coffee shops and local chains which maintained a 36% share of sales in 2013. There is a thriving culture among independent specialist coffee shops in the US, especially in larger metropolitan areas, and many consumers are very loyal to their local brands. Starbucks attempted to tap into this demand in recent years with the opening of a handful of new store concepts designed to fit within the specific neighbourhoods in which they were located. While the new outlets generated considerable media buzz, the venture was largely unsuccessful and the outlets have since been converted to standard Starbucks locations.
¦ The company remains highly dependent upon beverage sales for the majority of its revenues. In the company’s fiscal year of 2013, 75% of retail sales at company-operated stores stemmed from beverage purchases. This figure was unchanged from the previous year, though Starbucks continues to highlight new food offerings and encourage higher attachment rates of food and beverage items with the goal of increasing food share. The nationwide expansion of Starbucks Evenings introduces a larger variety of food options which could shift this share in the future; however this coincides with the introduction of more expensive wines and beers, which could maintain the balance or even shift it further in favour of drinks.
¦ Convenient soda-making technology has emerged in recent years, as exemplified by the popularity of the carbonated beverage maker Sodastream, and it has become a powerful tool for restaurateurs. In June 2014, Starbucks launched a line of handcrafted sodas, which are, again, designed to complement the food menu. Flavours include Spiced Root Beer, Golden Ginger Ale and Lemon Ale, giving familiar flavours but with an added spice or kick.
Summary 3 Starbucks Corp: Competitive Position 2013
Product type Foodservice value share Rank
Specialist coffee shops 1 59.9% 1
Source: Euromonitor International from company reports, company research, trade press, trade sources, trade interviews
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Guidelines for Conducting Case Analysis

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PEST Analysis:
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External Analysis– Porter’s Five Forces:
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Internal Analysis:
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Overall evaluation of the internal environment………………………………….

Key Success Factors…………………………………………………………………………

Alternatives (Strategic Choice of Business Strategies and Corporate Strategies)

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