Starbucks

Presented by:
Aditya Singh
 Presentation Outline
 Introduction to Starbucks
 Industry Overview
 Company Overview
 Recommendations for Improvement
 Focused Recommendation for Improvement
 Final Action Plan
 Impact Analysis
 Wrap Up

The Frappuccinos
 Introduction to Starbucks
 Company started in 1971 in Seattle, Washington

 Grew from 55 stores in 1989 to over 2,200 stores today

 More than 2400 stores in 33 countries outside the US

 More than 1500 stores in 31 markets outside North America

 Products sold include:

- beverages - pastries
- whole coffee beans - coffee-related retail items
The Frappuccinos
Starbucks Experience

The Frappuccinos
Industry Overview

The Frappuccinos
 Industry Definition
 Specialty Eatery Industry
– Fits within the largest segment of disposable
income spending -- food and beverages
– Steady growth in this segment in the 1990’s has
led to an abundant number of new companies
– As demand for convenience has made eating
out a normal routine, the demand for specialty
food services has increased in recent years

The Frappuccinos
 Industry and Competitive
Analysis
 Market Structure
– Monopolistic Competition
 Competitive Activity
– Many companies are in the market and competition is fierce
– Competitors use location, product mix, and store atmosphere differentiation to
establish market niche
 Industry Costs and Capital Structure
– Low to moderate costs for each location
– Major start-up expenditures are property and equipment
– Major operating costs are labor and cost of sales

The Frappuccinos
 Industry PEST Analysis
 Political Influences
– Relationships between coffee producing nations and US
– State & Local government controls
 Economic Influences
– Constant demand for food and beverages
– Changes in disposable income could influence purchase levels
 Social Influences
– Consumer preferences could shift from coffee to other beverages
 Technological Influences
– Use of technology can improve operational efficiencies

The Frappuccinos
Company Overview

The Frappuccinos
 Starbucks Corporate Strategy
 Maximize market penetration
 Provide a relaxing, attractive social
atmosphere
 Offer high-quality products

 Create a great working environment

 Achieve profitability

The Frappuccinos
 Mission and Goals
 Mission/vision:
– Define industry, values, customers, etc.
– Overall strategic approach

 Goals:
– Financial
– Strategic

The Frappuccinos
 Starbucks SWOT Analysis
 Strengths
– Largest market share in industry
– Differentiated atmosphere
 Weaknesses
– Aggressive expansion could lead to managerial / financial problems
 Opportunities
– Whole bean sales in supermarkets
 Threats
– Lack of ownership of coffee farms can lead to price fluctuations

The Frappuccinos
Value Chain of Firm Activities

Firm Infrastructure
Human Resource Management M
A
R
G
Technological Development IN
Procurement

Service
Operations

Marketing
Outbound
Logistics

Logistics
Inbound

& Sales
The Frappuccinos
RESULT OF OPERATIONS DATA (Data taken from 2004 Annual Report)

Net Revenues ($, in thousands) 2004 2003 2002 2001 2

Company-operated retail 4,457,378 3,449,624 2,792,904 2,229,594 1,823
Specialty: Licensing 565,798 409,551 311,932 240,665 189
Specialty: Foodservice and other 271,071 216,347 184,072 178,721 164
Total Specialty 836,869 625,898 496,004 419,386 354
Total Net Revenues 5,294,247 4,075,522 3,288,908 2,648,980 2,177

Percentage Relationship to Total Net

Company-operated retail 84.2 84.6 84.9 84.2
Specialty: Licensing 10.7 10.1 9.5 9.1
Specialty: Foodservice and other 5.1 5.3 5.6 6.7
Total Specialty 15.8 15.4 15.1 15.8
Total Net Revenues 100.0 100.0 100.0 100.0 1

Growth Rates (%)

Company-operated retail 22.6 19.0 20.2 18.2
Specialty: Licensing 27.6 23.8 22.8 21.3
Specialty: Foodservice and other 20.2 14.9 2.9 7.9
Total Specialty 25.2 20.8 15.4 15.6
Total Net Revenues 23.0 19.3 19.5 17.8

Percent Change in Growth

Company-operated retail 3.6 -1.1 2.0
Specialty: Licensing 3.8 1.0 1.6
Specialty: Foodservice and other 5.3 12.0 -5.0
Total Specialty 4.5 5.3 -0.1
Total Net Revenues
11/09/10 3.7 -0.2 1.7
 The use of IT at Starbucks

Sales, Inventory,
Inventory, Individual Individual Orders,
Staffing Stores Stores Transfers

Sales,
Inventory, Individual
Corporate IT Vendors,
Orders, Budgets,
Staffing Stores System Distributors,
Future Sales
Mgmt.,
Channel
Members

The Frappuccinos
 Order Cycle Times
Yes
.53 Min
Yes
Pastry?

No
Take .53 Min
Bottleneck
Customer’s
Order?
Order
Yes
.40 Min

No
Pastry?

No
.27 Min
Bottleneck Capacity 114 / Hr
The Frappuccinos
Recommendations

The Frappuccinos
 Recommendations For
Improvement
1. Revamp the employee reward system

2. Tighten focus on creating the “Third

Place” environment

3. Focus profitability measures on profitable

sales, not just reduction in staffing

The Frappuccinos
 Revamp Employee Reward
System
 Large percentage of the staff are under the
age of twenty
 Benefits package focuses on medical,
dental, and vision care, as well as the
employee stock options
 Outside of hourly wage, and semiannual
raises, there are few monetary rewards

The Frappuccinos
 Focused Recommendation

Improve “Third Place”

Environment

The Frappuccinos
 Pros and Cons of Discounted
Opportunities
Revamp the Employee Reward System
Pros Cons
– Employees are motivated – Pay and benefit structures
with more incentive to dictated by corporate HQ
perform – Cost of benefits would
– Lower employee turnover additional benefits lower
rates site profitability
– Positive reinforcement – New reward system requires
which leads to higher additional management
feelings of job satisfaction

The Frappuccinos
 Pros and Cons of Discounted
Opportunities (Cont.)
Focus Profitability Measures on More Than Just Staffing

Pros Cons
– Higher staffing levels – Staffing is a cost that will
benefit other employees decrease profitability
– Better customer service – Upper-level management
– Improved customer perception of low
focus could lead to employee productivity
higher sales – Employees may get in
each other’s way
The Frappuccinos
 Three-Step Action Plan For
Improvement
 Decrease employee turnover rate
– Focus on hiring older employees where benefits
package is more appropriate
– Base raises on performance rather than
maximizing raises for economic reasons
– Develop and actively maintain a reward system
for employees (i.e. employee of the month)
– Develop a system of regular employee
communications / meetings

The Frappuccinos
 Action Plan (cont.)
 Improve site accessibility and cleanliness
– Upgrade front door and restrooms for
handicapped accessibility
– Add a baby changing station
– Redesign restroom to separate cleaning supplies
from bathroom or move cleaning supplies to
another location
– Focus employee attention on restroom
cleanliness

The Frappuccinos
 Action Plan (cont.)
 Enhance Starbuck’s differentiated
atmosphere
– Utilize entertainment budget to hire outside
entertainers, have book / poetry readings, etc.
– Display the store’s collection of games and
activities more prominently
– Make the location more of a “scene”

The Frappuccinos
 Impact Analysis - Benefits
 By focusing on the initial recruitment and hiring
stage, and by rewarding employees based on merit
current turnover rates will be reduced.
 By focusing on site accessibility and cleanliness, the
physical facility will not detract from atmosphere.
 By improving Starbucks’ atmosphere, it will
become a more attractive place to go.

The Frappuccinos
 Potential Risks
 Customers may not react positively to the
changes being made
 Not enough available employees to meet re-
aligned hiring needs
 Claims of age discrimination and negative
affect on sales in youth demographic
 Costs associated with planned change

The Frappuccinos
 Wrap-Up
 Starbucks is the market leader in a growing
market segment
 Starbucks is known world-wide for its high-
quality food products and differentiated
“Third Place” atmosphere
 The Wellesley location embodies the ideals
of the corporate mission and has been very
profitable, but there are still opportunities for
improvement
The Frappuccinos