Starbucks Growth Strategy
In 1971, three academics, English Teacher Jerry
Baldwin, History Teacher Zel Siegel and writer Gordon Bowker opened Starbucks
Coffee, Tea and Spice in Touristy Pikes Place Market in Seattle. The three were
inspired by entrepreneur Alfred Peet (whom they knew personally) to sell
high-quality coffee beans and equipment. The store did not offer fresh brewed
coffee by the cup, but tasting samples were sometimes available. Siegel will
wore a grocers apron, scooped out beans for customers while the other two kept
their day jobs but came by at lunch or after work to help out. The store was an
immediate success, with sales exceeding expectations, partly because of
interest stirred by the favorable article in Seattle Times.
Starbucks ordered its coffee-bean from Alfred Peet
but later on the three partners bought their own used roaster setting up
roasting operations in a nearby ramshackle building and developed their own
blends and flavors. By the year 1980s the company had four Starbucks Stores in
Seattle area and had been profitable every year. Later on, Siegel left the
company and
Jerry Baldwin took over day-to-day management of
the company. Gordon Bowker remained as an owner but devoted most of his time in
his Design Firm. In 1981, Howard Schultz, the vice president of U.S operations
for Swedish Maker of stylish kitchen equipment and coffeemakers decided to pay
Starbucks a visit. He was curious about why Starbucks was selling so many of
his company products. He was impressed with the company management and the quality
products the make. Schultz asked Baldwin whether there was any way he could fit
into Starbucks and it took long time to decide his request. He tried many times
till one day he was given a job of heading marketing and overseeing the retail
stores.
Howard Schultz spent most of his working hours in
the four stores learning the retail aspects of the company business; Schultz
was overflowing with ideas for the company. His biggest inspiration and vision
for Starbucks future came during 1983 when the company sent him for an
international house wares show to Milan, Italy. There he spotted an espresso
bar and went to take a coffee. He was impressed with the coffeehouse services
and decided to stay at Milan for a week to explore all coffee bars and learned
as much as he could about the Italian passion for coffee drinks. He made a
decision to serve fresh brewed coffee, espressos, and cappuccinos in its
stores and try to create an American version of
Italian coffee bar culture. He shared his idea with Baldwin and it took nearly
a year to convince Jerry Baldwin to let him test an espresso bar. In April
1984, the first espresso bar was opened and it was a successful too. Yet
Baldwin felt something is wrong. After Schultz failed to convince Baldwin for
the expansion of business, he left Starbucks in 1985. Schultz started the “Il
Giornale” coffee bar chain in 1985 and the coffeehouse was very successful. In
1987 Starbucks owner Jerry Baldwin and Bowker decide to sell the whole
Starbucks chain to Schultz’s Il Giornale, which rebranded the Il Giornale
outlets as Starbucks and quickly began to expand. Starbucks opened it’s first
locations outside Seattle at Waterfront Station in Vancouver, British Columbia,
and Chicago, Illinois, that same year. At the time of its initial public
offering on the stock market in 1992, Starbucks had grown to 165 outlets. In
2009 The Company plans to open a net of 900 new stores outside of the United
States.
Today, Starbucks coffee shops
and Kiosks can be found in a variety of shopping centers, office buildings,
bookstores, and other outlets. Starbucks is capitalizing on taste changes that
predate the company’s founding. In the early 1960’s, American adults consumed
on an average ofthree cups of coffee each day. Today, consumption has declined to
less than two cups, with only half of American adults as coffee drinkers.
During this time, decaffeinated coffee sales soared. In addition, a new
category of intensely loyal coffee drinkers was born. This group of adults
consumes “specialty” or “premium” coffees, including regular and decaffeinated
versions with a variety of origins and flavors. Sales of specialty coffee have
climbed from about $45 million annually to more than $2 billion today,
accounting, for about 20 percent of all coffee sales.
Because Starbucks markets whole beans and coffee
beverages, its competition comes from two distinct groups of firms. A number of
regional coffee manufacturers distribute premium coffees in local markets,
while several large national coffee manufacturers such as Nestle, Proctor &
Gamble, and Kraft General Foods market and distribution specialty coffees in
supermarkets. Coffee beverages are distributes by restaurants, grocery stores,
and coffee retailers. Seattle’s Best Coffee is a fierce competitor. Chairman
Howard Schultz projects that Starbucks will grow from its present 6,000 stores
to more than 20,000, 75 percent of which are in the Unites States. The company
added 280 intentional locations in 2001 and is targeting an additional 650
stores in Europe by 2004 and 900 locations in Latin America predominantly
Mexico by 2005, Starbucks is also moving into China. Retail stores account for
more than 80 percent of revenues, with specialty operations accounting for the
remainder.
1. What are some of the challenges associated with
Starbucks aggressive growth strategy?
2. Could an unanticipated change in coffee
consumption patterns disrupt Starbucks in the same way that it paved the way
for the company’s growth in the 1980s?
3. What problems might arise
from Starbucks’ efforts to expand rapidly into nations such as India?
4. Comment on the pricing strategies of
Starbucks.
5. How would you see the competition of Starbucks
in India, with players like Costa Coffee?
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