Case Study. Sturbucks - 2006

By. Fanerick G. Kawatu

Program Pascasarjana Universitas Klabat

2011

In 2003, Starbucks accomplished something that few companies ever do: It became a Fortune 500 companya phenomenal achievement for a company that went public only 12 years earlier. The company had over 6,000 stores worldwide in 2003 and expanded to nearly 11,000 by early 2006.Starbucks created not only a successful business but a thriving industry. When the company started its massive expansion in theearly 1990s, the United States had about 200 coffeehouses. In 2003 there were over 14,000 coffeehouses, the majority of them not Starbucks but mom-and-pops that bloomed after the dawn of the $3 cupof coffee. According to a Starbucks executive, “We changed the way people live their lives, what they do when they get up in the morning,how they reward themselves, and where they meet. That’s more important to me than just building a company.”More than 10 million coffee lovers spend an average of $3.60 at Starbucks weekly, and 10 percent of them come in twice a day. Starbucks has 7 percent of the U.S. coffee-drinking market and less than1 percent abroad, suggesting ample room for growth. The coffee market is huge; coffee is the second most consumed drink in theworld (water is first). Starbucks’ iced beverages, which offer larger profit margins than regular drip coffee, are big sellers in the South and Southwest. After making some adjustments, such as adding outdoor seating and couches to stores to better serve the needs of its customers, Atlanta locations have shown double-digit sales growth. Atlanta boasts 33 successful Starbucks, and plans for expansion are in the works. Plans for further expansion in cities with even more Starbucks stores, such as New York City and San Francisco, are also on the drawing board. Although 70 stores operate in New York City alone, it is estimated that growth there will continue until 200 stores are operating in the city! As for fears of market saturation, Starbucks has none. In fact, the java giant has two highly profitable outlets that face each other on Robson Street in Vancouver, British Columbia. Each store has more than $1 million in annual sales. International expansion is also taking place. In fact, the number one Starbucks in the world is located in Tokyo, and a total of 500 stores are slated to be operational in Asia in the next three years. What is the secret of Starbucks’ phenomenal success? According to Howard Schultz, chairman and former CEO of Starbucks Corporation, the company’s success is due to the experience created within the stores as well as the unsurpassed quality of the coffee. A steaming café au lait must be perfectly replicated, whether the store is in Seattle or New York City. In a world filled with people leading busy, stressful lives, Schultz believes he has created a “third place” between home and work where people can go to get their own personal time out or to relax with friends. Schultz also attributes his company’s success to the thousands of employees working worldwide. Starbucks’ employee training program churns out “baristas” by educating 300 to 400 new hires per month inclasses such as “Brewing the Perfect Cup at Home” and “Coffee Knowledge.” Here they are taught to remind customers to purchase new beans weekly and that tap water might not be sufficient when brewing the perfect cup of coffee. They are also encouraged to share their feelings about coffee, selling, and working for Starbucks.Employees are also given guidelines to maintain and enhance self-esteem, to learn how to listen and acknowledge, and to know when toask for help. E-mail, suggestion cards, and regular forms allow unsatisfied workers to communicate with headquarters. If the annual barista turnover of 60 percent, compared with 140 percent for hourly workers in the fast-food industry, is any indication of the quality of its training programs, Starbucks seems to have a handle on how to gain and maintain employee loyalty. What about the demographic make up of the work force? About 24 percent of the employees are people of color and 63 percent are women. The Starbucks success story is continuing into the 21st century as the company is quickly expanding into Europe and Asia. However, one question remains regarding the success of the company in countries already known for their coffee-making expertise: Will such Romans and Parisians care for Starbucks? Continued expansion and visibility has been created domestically as Starbucks has formed partnerships with companies such as United Airlines and Barnes & Noble Booksellers, both of which draw from the same type of knowledgeable customer. More recently, Starbucks has opened several full-service dining establishments (Café Starbucks) in response to customers who want more at lunch and dinner. The menu offers full meals, breads, pastries, alcohol, and, of course, coffee. The company has also launched an Internet site that sells not only expensive coffee but also pricy kitchenware, home furnishings, and gourmet food. After some skepticism by analysts and a subsequent drop in share price, Schultz emphasized that “Every company must stick to its knitting, understand its core competency, know what the value proposition is for the customer, and do everything possible to get close to the customer. So you won’t see us getting far a field from what we do now.” As for the present, Starbucks is not likely to fall victim to a fad-driven society any time soon. The company seems to be doing just fine.

STATEMENT OF THE PROBLEM

“ Continuing the Customer Value Proposition and Customer centric approach while enhanced the market saturation and canibalization in the US, as the largest target market”

SWOT

ØStrength

1.Never experienced a strike or work stoppage

2.Good relationships with coffee suppliers

3.Value employees

4.Located in high traffic areas

5.Employee turnover rate is 60%, compared to 140% in the fast food business

6.They don’t move into new markets until they dominate the ones they expand into.

ØWeakness

oExcessive focus

oEmployees report to two division heads

oIncreasing shareholders dilutes their interest

oThey have expanded too quickly, and have already saturated the US market

oThey do not allow smoking in their stores, alienating some of their customers

ØOpportunities

oExpansion into European and Latin American markets

oDistribution agreements, such as hotels, airlines, and office coffee suppliers

oReducing alcohol consumption in the US leads to bars being used less which leads to people needing another place to go

oUse supermarkets as a way of expanding into international markets

oNumerous brand extension

oImprove on perception of instant and decaffeinated coffee to expand that market share

ØThreat

oThe coffee market is saturated

oCost of coffee beans is expected to rise in the near future

oSupermarkets threaten whole bean sales

oFarmers might switch from coffee to vegetable crops

oHigh competition from Japanese competitors

oConsumers trend toward more healthful fare

ALTERNATIVE COURSE OF ACTION

1. 
   
2. Melakukan penutupan sementara terhadap gerai-gerai Starbucks yang tidak profitable.
   

Advantages:

-Menghindari potensi kerugian yang lebih besar.

-Penutupan yang dilakukan hanya bersifat sementara saja.

Disadvantages:

-Mengganggu citra dan brand Starbucks itu sendiri

-Mengalami kerugian yang cukup besar dikarenakan biaya operasional dan perlengkapan yang terlanjur dikeluarkan.

-Biaya pesangon karyawan yang terkena PHK.

1. 
   
2. Melakukan strategi segmentasi target market yang berbeda dari gerai-gerai Starbucks yang berdekatan didalam suatu lokasi yang sama.
   

Advantages:

-Masing-masing gerai memiliki segmen konsumen yang berbeda-beda.

-Tidak terjadinya market kanibalisasi antar gerai.

-Mengindari penutupan gerai-gerai yang tidak profitable, sehingga juga menghindari kerugian material dan immaterial.

-Menawarkan pilihan yang lebih beragam kepada para konsumen yang memiliki latarbelakang bervariasi didalam sebuah Kota besar.

Disadvantages

-Konsekuensi biaya research pasar yang meningkat.

-Berpotensi memudarkan brand recognition Starbucks itu sendiri.

1. 
   
2. Menerapkan strategy pembukaan gerai Starbucks yang didasarkan pada jumlah penduduk (teritorial), bukan didasarkan pada jumlah Kota.
   

Advantages:

-Melalui system bilangan pembagi antar penduduknya, maka gerai yang dibuka dapat diukur performancenya dan dikawal pertumbuhannya.

-Dengan perkiraan yang matang maka gerai yang dibuka diharapkan dapat relevan dengan jumlah penduduk disuatu daerah tersebut.

Disadvantages:

-Karakteristik dari masing-masing daerah yang berbeda-beda, menuntut management untuk mempelajari demografinya secara matang.

-Mobilitas kehidupan masyarakat modern, yang seringkali berpindah-pindah aktifitas kerja, dari satu daerah kedaerah lainnya.