Growing Big While Staying Small: Starbucks Harvests International Growth

MARKETING MANAGEMENT 1

WAC

Growing Big While Staying Small:  Starbucks Harvests International Growth

STEVE FOX

No. 1

Starbucks was the largest premium coffee seller in the world in 2009 with over 17,000 stores worldwide, with about two-thirds of the stores in the United States.  It has reached all-time high revenue of $10.4 billion by the end of 2008.  Its success was driven primarily by the aggressive expansion both in the United States and in international markets.  Starbucks was able to export its promise to customers—high quality products and intimate and enjoyable experience consistently in overseas markets while adapting to local tastes and preferences through its product mix.  Starbucks had the right entry strategy to overseas markets through joint venture partnerships with local business or through acquisitions.  To increase revenue per customer to sustain revenue growth, Starbucks introduced new products into its menu by offering food, ice cream, ready-to-drink and instant coffee and even enhanced customer experience by venturing into music.

Starbucks deliver value and build relationship with its customers by offering premium coffee products, superior customer service, and a unique coffeehouse atmosphere.  Starbucks instituted measures throughout its value-chain to ensure the quality of its products, paid careful attention to customer preferences, and standardized its drink preparation procedures.  It adopted a policy of selecting only the top 3% beans when roasting to ensure quality.  Starbucks focused on building a talented work force recognizing it as requisite to world-class customer service, by hiring and training great people and retaining only the best employees.  Starbucks implemented some of the best-in-class employee training programs (i.e., “coffee passport” program, soft skills, “just say yes” policy and “ways of being”) and instituted a mystery shopper program (“customer snapshot”), which measures service, cleanliness, product quality, and speed of service.  It also launched its stored-value card program, which made it more convenient for customers to pay and at the same time using the program as the platform for its loyalty program.  To ensure a unique coffeehouse experience, Starbucks had to consistently execute on the details.  The “coffee experience” it provided consisted of the products, the service, and the atmosphere.  Starbucks stores had to offer warm, comfortable and enjoyable experience for people meet and socialize while drinking coffee and eating snacks.

No. 2

By the end of 2008, Starbucks reached all-time high revenue of $10.4 billion.  In the first quarter of 2009, it had grown to over 17,000 stores worldwide.  While its revenue in 2008 was great, its growth rate was actually down by half at 10.7% (vs. 2007) vis-à-vis the 21% average growth rate in the last three years.  In the last quarter of 2008 its earnings dropped by 97% and its same-store sales experienced a decline, for the first time, at -3% by the end of 2008 vs. 5% and 7% growths in 2007 and 2006, respectively.  It announced to close a total of 900 stores in 2009 to arrest the declining same-store growth.

Starbucks CEO Howard Schultz and his executives were facing a number of challenges.  Starbucks had to grapple with a deep and on-going global economic slump (brought about by the sub-prime meltdown and credit crunch in the United States), a mounting worldwide competition from major food-service players, and new markets with far different tastes and expectations from the United States and other regions where Starbucks was well established.  Schultz and his team knew that international expansion was their best bet to drive high-powered growth, yet they recognize in part from early failures in geographies like Australia, that overseas markets may not respond well to the Starbucks three-pronged value proposition.  Below is an attempt to identify Starbucks’ strengths, weaknesses, opportunities and threats.