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STARBUCKS STARBUCKS
EXERCISEEXERCISE
In BUSINESS STRATEGYIn BUSINESS STRATEGY
©2003
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STARBUCKS VIDEOSTARBUCKS VIDEO
An Interview with Howard An Interview with Howard Schultz, Schultz,
Founder, Chairman & Chief Founder, Chairman & Chief Global StrategistGlobal Strategist
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WHAT IS STARBUCKS WHAT IS STARBUCKS STRATEGYSTRATEGY• For Howard Schultz
• For Management and Employees
• For Shareholders
• For Customers
• For Suppliers and Partners
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STARBUCKS CURRENT STARBUCKS CURRENT STRATEGYSTRATEGY
Continue the focus on growthContinue the focus on growth
Establish a leadership positions with company owned stores in key Establish a leadership positions with company owned stores in key
markets- USA, Japan, Australia, UKmarkets- USA, Japan, Australia, UK
Pre-emptively enter and aggressively grow in all targeted marketsPre-emptively enter and aggressively grow in all targeted markets
Leverage the brand into new product categories and channelsLeverage the brand into new product categories and channels
Continue operations improvementContinue operations improvement
Growth through innovationGrowth through innovation
Develop and maintain leadership talentDevelop and maintain leadership talent
Maintain our values, culture and guiding principlesMaintain our values, culture and guiding principles
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Creating and Building a Creating and Building a BrandBrand
Identify elementsIdentify elements Target consumersTarget consumers Target needs (what do your consumers Target needs (what do your consumers
need?)need?) Target value proposition (why Target value proposition (why youryour
product?)product?) Target messageTarget message Mix, media, spend…Mix, media, spend…
Make sure all the elements are alignedMake sure all the elements are aligned
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Aligning the Marketing Value ChainAligning the Marketing Value ChainWho are they? Psychographically Demographically Geographically
What are their current needs? Personal needs and usage occasions
Why Buy (Brand)? (Essence of the brand) Product line 1 Product line 2…
How do we communicate the “why”? For the brand? By product line?
TargetNeeds
TargetMessage
TargetValue
TargetConsumer How
aligned is
your brand?
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Starbucks as a BrandStarbucks as a Brand
Attribute/action Starbucks
Practical attributes
Emotional attributes
Extend brand up/down
Product/line extensions
Territory extensions
Private label
Co-Branding
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U.S. Coffee Market SizeU.S. Coffee Market Size
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2020
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STARBUCKS CASE ANALYSISSTARBUCKS CASE ANALYSIS What has made Starbucks successful?What has made Starbucks successful? What business is Starbucks in?What business is Starbucks in? When consumers buy Starbucks coffee what are When consumers buy Starbucks coffee what are
they buying?they buying? What are Starbucks core competencies and key What are Starbucks core competencies and key
strategic assets?strategic assets? Which growth strategy should Starbucks choose? Which growth strategy should Starbucks choose?
Why? Why? How would you implement the strategy you How would you implement the strategy you
choose & what are implications for the Starbucks choose & what are implications for the Starbucks economic model?economic model?
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MARKETS
PRODUCTS
Existing New
Existing
NewNew ProductInnovation
STRATEGIES TO GROW SALES
Market Penetration
MarketExpansion
Diversification
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MARKETS
PRODUCTS
Existing New
Existing
NewNew Product Innovation• Frappuccino• Tiazzi• Tazo teas
STARBUCKS STRATEGIES
Market Penetration• Expand In US• Add drive thru• Expand seating
Market Expansion• Barnes & Noble • Airports & airlines• Aramark
Diversification• Ice cream• Bottled Frappuccino
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Growth Opportunities & Value Growth Opportunities & Value ChainChain
DomesticRetail
InternationalRetail
Grocery Expansion
SalesPartners
On-LineMail Order
New Ventures
Sourcing Roasting Distribution Sales Consumers & Blending
Skilled buyersSkilled buyers
Forward Forward contractscontracts
Company Company plantsplants
-Kent, WA-Kent, WA
-Wilksbor, PA-Wilksbor, PA
Regional DCsRegional DCs
Direct delivery Direct delivery (DSD)(DSD)
2-3x retail 2-3x retail unitsunits
(potential (potential 5,500 per 5,500 per Specialty Specialty Coffee Assoc)Coffee Assoc)
AdvertisingAdvertising
Stored value Stored value cardcard
2x cups per 2x cups per dayday
2x penetration2x penetration
Regional plantsRegional plants Joint venture Joint venture
LicensesLicenses
UK, JapanUK, Japan
USAUSA Ice creamIce cream
Botttled drinksBotttled drinks
Coffee Coffee (beans/ground(beans/ground))
Foodservice Foodservice
Business Business AlliancesAlliances
-Airports-Airports
-Hotels, -Hotels, restaurantsrestaurants
Kraft licenseKraft license
Dreyer’s JVDreyer’s JV
Pepsi JVPepsi JV
Host MarriottHost Marriott
CatalogCatalog
Internet Internet
TeaTea
MusicMusic
GamesGames
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STRATEGIC ISSUESSTRATEGIC ISSUES Declining corporate growth rate Declining corporate growth rate Average ROA, ROE and ROCEAverage ROA, ROE and ROCE Morning day part focusMorning day part focus Growing importance of Frappuccino drinksGrowing importance of Frappuccino drinks Question on ability to implement diversificationQuestion on ability to implement diversification
-Acquisition s-Acquisition s --Internet /WirelessInternet /Wireless -Grocery Ventures-Grocery Ventures
Enormous hiring and training needsEnormous hiring and training needs Licensing Licensing -International-International -US Business alliances-US Business alliances Metrics and role of Starbucks CardMetrics and role of Starbucks Card
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GROWTH INTITIATIVESGROWTH INTITIATIVESCurrent:Current: US Retail ExpansionUS Retail Expansion International ExpansionInternational Expansion Business Alliances: supermarkets, retailers, Business Alliances: supermarkets, retailers,
foodservice, grocery productsfoodservice, grocery products New Ventures: Tazo, Hear Music, Value CardNew Ventures: Tazo, Hear Music, Value Card
Opportunities:Opportunities: New ProductsNew Products New Distribution Channels: vending, kiosks, New Distribution Channels: vending, kiosks,
foodservicefoodservice New MarketsNew Markets AcquisitionsAcquisitions
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ANALYSIS GRIDANALYSIS GRIDDomestic Domestic RetailRetail
InternationInternational Retailal Retail
GrocerGrocery y ChannChannelel
Business Business AlliancesAlliances
Online and Online and CatalogCatalog
New New ProductsProducts
PeoplePeople
LeadershipLeadership
Human Human ResourcesResources
Hiring needsHiring needs
Conflict Conflict ResolutionResolution
Change Change ManagemenManagementt
MarketingMarketing
Brand Brand EquityEquity
Hear MusicHear Music
Tazo TeasTazo Teas
Competitive Competitive PositionPosition
GrocerGrocery y kioskskiosks
Target Target marketsmarkets
Small townsSmall towns
Virgin Virgin RecordsRecords
Consumer Consumer ValuesValues
Value cardsValue cards
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ANALYSIS GRIDANALYSIS GRIDDomestic Domestic RetailRetail
InternationInternational Retailal Retail
GrocerGrocery y ChannChannelel
Business Business AlliancesAlliances
Online and Online and CatalogCatalog
New New ProductsProducts
EconomicsEconomics
FinancingFinancing Negative Negative cash flowcash flow
Profit Profit PotentialPotential
LicensingLicensing Calculate?Calculate?
Activity Activity Based Based CostingCosting
OperationsOperations
SourcingSourcing Fair tradeFair trade
OrganicsOrganics
ManufacturinManufacturingg
Third plantThird plant European European plantplant
Asian Asian plant?plant?
NegotiationNegotiation
Supply ChainSupply Chain DSD?DSD?
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HOW FAST SHOULD INTERNATIONAL EXPAND
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SHOULD THERE BE MORE NEW PRODUCTS EMPHASIS
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ANTICIPATE WHERE THE PUCK ANTICIPATE WHERE THE PUCK WILL BE…..WILL BE…..
FROST & PARTNERS
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STARBUCKS PERFORMANCESTARBUCKS PERFORMANCE
$8 billion Market Capitalization$8 billion Market Capitalization 20+% annual sales growth rate20+% annual sales growth rate 11 years of 5+% comparable 11 years of 5+% comparable
store sales revenue growthstore sales revenue growth 6,193 stores in 30 countries6,193 stores in 30 countries One of the top 9 companies to One of the top 9 companies to
work for in the USAwork for in the USA More than 10x as many retail More than 10x as many retail
stores as its nearest competitorstores as its nearest competitor Market leader in gourmet coffee Market leader in gourmet coffee
retailing and in supermarketsretailing and in supermarkets 20+% CAGR Share Prices20+% CAGR Share Prices
Source: Hoovers
SBUX Share Price Since IPO
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STARBUCKS REVENUES STARBUCKS REVENUES GROWTHGROWTH
$0$200$400$600$800
$1,000$1,200$1,400$1,600$1,800$2,000$2,200$2,400$2,600$2,800$3,000$3,200$3,400
'97 '98 '99 2000 '01 '02
$Millions
$975$1,308
$1,688
$2,178
$2,649
$3,289
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RETAIL STORE GROWTHRETAIL STORE GROWTH
0400800
1,2001,6002,0002,4002,8003,2003,6004,0004,4004,8005,2005,6006,0006,4006,8007,200
'97 '98 '99 2000 '01 '02 '03e
Licensed Locations
Company -Owned Locations
Nu
mb
er
of
store
s
1,4021,8862,498
3,501
4,709
5,886
7,086
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5%-9% COMPARABLE 5%-9% COMPARABLE STORE SALES GROWTHSTORE SALES GROWTH
0%
4%
8%
12%
'99 2000 '01 '02 '03e
6%
9%
6%
5% 5%
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OPERATING MARGINSOPERATING MARGINS
0%
2%
4%
6%
8%
10%
'97 '98 '99 2000 '01 '02
8.8% 8.3%
9.3% 9.7%10.6%9.7%*
* Excludes one-time items.
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NET EARNINGS GROWTHNET EARNINGS GROWTH
$0
$50
$100
$150
$200
$250
'97 '98 '99 2000 '01 '02
$ Millions
$55$68*
$101.6$94.5*
$181.2
$215
* Excludes one-time items.
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Earnings Per ShareEarnings Per Share
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
'97 '98 '99 2000 '01 '02
$.66
$.75*
$.27 $.24*
$.46
$.54*
* Excludes one-time items.
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