Term Paper: Starbucks Corporation Competing in a Global Market

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Starbuck's Case Study

Briefly describe the history and evolution of Starbucks.

Seattle entrepreneurs Jerry Baldwin, Zev Siegl, Gordon Bowker founded Starbucks in 1971, locating their coffee importing business in Seattle's Pike Place market. The founders were content to grow the coffee importer to five stores in the metro Seattle area, and were gradually becoming known in the coffee industry, and as a result of these associations met Howard Schultz, who would eventually buy the chain and transform its business model. Mr. Schultz was passionate about introducing retailing concepts he had originally discovered during a trip to Milan, Italy and immediately after coming back from Italy, launched what would become the prototypical Starbucks stores, combining meetings places with good ambience for friends catching up with each other while enjoying a quality cup of coffee, calling these locations Giornale. As a result of the success of these stores Schultz purchased the Starbucks store chain in 1982 for $4M. As part of the retailing strategy Mr. Schultz began providing coffee to restaurants and espresso bars in the same year he purchased the company. Throughout the late 1980s Starbucks completed its first geographic expansions to Chicago and Vancouver, and also created its own catalog as well. Mr. Schultz has been known to focus on the socially responsible aspects of Starbucks since its founding and in 1991 initiated a relationship with CARE (an international humanitarian organization) and introduced CARE coffee sampler, and in 1992 Starbucks completed its IPO (initial public offering) on the NASDAQ National Market. The first half of the 1990s were years invested in the development of retail locations throughout the U.S. And the sale of music through retail storefronts in 1996, and also in the same year Starbucks opened locations in Japan, Hawaii, and Singapore. Within two years Starbucks launched stores in Taiwan, Thailand, New Zealand, and Malaysia, with Starbucks Coffee International in 1999-2000 timeframe launching new retail locations in China, Kuwait, Korea, and Lebanon. During this global expansion phase, Starbucks partners with Delek Group to open Starbucks retail locations throughout the Middle East including Israel. During the 2000-2003 timeframe global expansion continued with locations added in Paris, more retailing alliances formed globally and within the U.S. including Albertson's, and a more concentrated focus on acquisitions as well. The last three years of the company's history has included several acquisitions, joint ventures and alliances for entrance into foreign markets, and a series of research efforts to determine how best to enter the Indian market as well. In addition to the retailing strategy efforts, Starbucks has also moved into music recording with a joint venture with Concord Music Group to create the record label, Hear Music, which was announced in March, 2007. Hear is going to focus on internally known artists, with the first artist being Paul McCartney.

In your view, what are the key events in the history of the company?

There are several pivotal moments in the history of Starbucks that have transformed the coffee importer into a global retailer. The first is clearly the insights gained by Mr. Schultz during his trip to Milan, Italy and the retailing concept of having a meeting place ambience and atmosphere where friends could gather and drink coffee while relaxing and listening to music, while enjoying pastries. The vision of what Starbucks could be was foundational to the limited geographical growth in the mid-1980s and the immediate development of retail channels for the coffee itself as well.

Another pivotal key event was the development and launch of the first international stores in 1995 in conjunction with SAZABY International, specifically to develop coffee houses in Japan. This event also fueled the development of Starbucks Coffee International, which eventually served as the catalyst for the company's global growth into Europe and throughout Asia as well.

The company's history of acquisitions also has solidified their growth as well. In 1999 the acquisition of Tazo, a premium tea provider, and Pasqua, a specialty coffee roaster gave Starbucks additional support for their product development strategies. In 1998 Starbucks acquired Seattle Coffee Company (SCC) for the supply chain, products, and 70 company-operated stores and 76 franchises owned outright by SCC. More recently Starbucks announced its acquisition of Ethos Water in 2005, a privately held bottled water company based in Santa Monica, California. Keeping up the acquisition pace, the company acquired full ownership of Coffee Partners Hawaii, the joint-venture company that operates its retail stores in Hawaii in 2006. Throughout that year the company also worked to acquire Cafe del Caribe, the joint venture company that operates its retail stores in Puerto Rico and throughout the Caribbean. This strategy of using acquisitions to gain entry into new markets has been successful and one that Starbucks relied on extensively in the 2006 timeframe. Also in that year H&Q Asia Pacific was acquired, a chain that will make it possible for 60 Starbucks retail stores in Beijing and Tianjin, People's Republic of China to be licensed under Chinese law. It also acquired an authorized licensee of Starbucks Coffee International in October 2006. Starbucks launched operations in Brazil in December 2006 by opening two stores in Sao Paolo. Starbucks entry into India has not yet occurred yet it is clearly imminent and will most likely be handled through a series of joint ventures, or one large one as is evidenced by the acquisition of H&Q Asia Pacific to gain access to Chinese retailing locations quickly.

Using your own words, described the Starbucks model

The Starbucks Model is designed to capitalize on creating and sustaining a strong local presence in communities, and clustering stores for logistics and replenishment efficiencies while at the same time strengthen the brand. Starbucks clusters stores so closely together than there is often a 30% cannibalization rate, and this is intentional. Sawbucks has done studies of the costs of logistics and seen that having clusters significantly reduces re-stocking and deliver costs. In addition, store clustering with a 30% cannibalization overlap is comparable to blanketing an entire metro area with advertising. As Starbucks does not spend on advertising (according to the case study less than 1% of sales is spent on advertising) the clustering and concentration of stores also increases top-of-mind awareness of coffee drinkers in each area. The clustering of stores also leads to greater levels of customer loyalty and retention as well. As the case study has mentioned, on an average week 20 million people buy a cup of coffee at Starbucks with the average customer making a purchase 18 times a month.

What underscores the Starbucks model however at a foundational level are the following series of factors. First, the company's coffee expertise is exceptional, and this is reflected in the supply chain developed that includes sourcing high-grade arabica beans from coffee-growing regions of Latin America, Africa/Arabia, and Asia/Pacific. As of December, 2007 there are 27 core coffees offered in Starbucks retail outlets and 10 promotional blends (e.g., Christmas blend). New product development is one of the core strengths of Starbucks, with the Frappuccino development a case in point (Plog, 2005). This new product development expertise has lead to the development of multiple coffee-based drink platforms, including cold-blended drinks (e.g., Frappuccino), the mainstream brewed coffee, hot espresso beverages, Espresso-based, and regionalized drink platforms as well. The Baristas go through intensive training to learn how to customize these drinks for customers and also to underscore the values that Starbucks has as part of their culture.

Another foundational element of the Starbucks model is the ability to quickly innovate and develop new drinks. In the 2005-2006 timeframe alone Starbucks launched 22 new beverages (Plog 2005). The company relies on innovation heavily during holiday periods as well, with seasonal drinks including Pumpkin Spice Latte, Cinnamon Dolce Latte, Green Tea Frappuccino blended creme, Banana Frappuccino blended beverage, and Frappuccino juice blends.

A third foundational element of the company's success has been the ability to establish and maintain a third-place experience, precisely the vision of Mr. Schultz had for the company after visiting Italy early in the company's history. Much of the success of the Starbucks brand in attributable to the customer experience in stores. The company refers to this phenomenon as the "Third Place Experience" to define how customers rely on the Starbucks coffeehouse concept as a "third" gathering place outside of work and home. Panera Bread has been very successful with this strategy as well. The Third Place Experience is built upon offering a variety of coffee and complementary products as well as high-quality customer service (by knowledgeable employees) in an appealing environment according to researchers who track Starbucks' success in this area. It is clear that management at Starbucks sees the third-place experience as critical for growth in China and other geographies as well (Fowler, 2003) and believes that consumers want a "third place" across cultures as well, and this is considered one of the major global drivers of growth for Starbucks moving forward. This concept of the third place has potential among teens and young adults, as stores provide a… [END OF PREVIEW]

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