Starbucks Case Analysis

Company Background

Three Seattle academics and entrepreneurs, English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker, started the Starbucks Corporation in 1997. Their primary product was the selling of whole bean coffee in one Seattle store. By early 1980’s, this business had grown into four stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. “There store did not offer fresh-brewed coffee sold by the cup, but tasting samples were sometimes available” (Thompson, Jr. et al, 2005). In 1982, Howard Schultz left his job as vice president and general manager of a Swedish company and assumed his new responsibilities as head of marketing and overseeing Starbucks retail stores. He brought new ideas to the owners, but they were often turned down. (Thompson, Jr. et al, 2005)

Schultz, in turn, opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed dark roast coffee. By 1987 Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $3.8 million. He changed the name of his coffee bars from Il Giornale to Starbucks and became the president and CEO of the corporation at the age of 34. His intention for the company was to become a national organization growing gradually to 125 stores with a very solid foundation over the next five years. He wanted to create a superior management team by persuading top executives from other well-known corporations to join him. (Thompson, Jr. et al, 2005)

For the first three years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks’ expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1990, Starbucks became profitable and sales were growing by approximately 80%. Schultz met and exceeded his goal of reaching 125 stores in 5 years producing a total of 161 stores by 1992. By 1996 it grew to 1,015 stores with plans to open over 2,000 stores by the year 2000. “Management expected to have 15,000 stores year end 2005 and 25,000 locations by 2013” (Thompson, Jr. et al, 2005).

Business & Corporate Level-Strategy

Starbucks’ corporate strategy has been to “establish itself as the premier purveyor of the finest coffee in the world, while maintaining [their] uncompromised principles as they grow (Thompson, Jr. et al, 2005). Additionally, Howard Schultz’s 25-year goal is to become the most recognized and respected brand in the world. The solid principles of the company are shown in its mission statement which is used as a tool to measure the appropriateness of the firm’s actions. The six guiding principles are as follows:

• Provide a great work environment and treat each other with respect and dignity.

• Embrace diversity as an essential component in the way we do business.

• Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.

• Develop enthusiastically satisfied customers all of the time.

• Contribute positively to our communities and our environment.

• Recognize that profitability is essential to our future success.

("Starbucks mission statement”, 2005)

Starbuck’s approach to competition follows a strict growth policy completely blanketing an area, even at the expense of losing sales at other locations. Schultz believes the “Starbucks-everywhere approach cuts down on delivery and management costs, shortens customer lines at individual stores, and increases foot traffic for all the stores in an area” (“Starbucks Corporation, 2003). This strategy has gained them the advantage of being one of the fastest growing companies in the country.

Employees

Starbucks believes that their employees are one of their most important assets in that their only sustainable advantage is the quality of their employees. Schultz upholds the company’s mission of providing a great work environment with respect and dignity by encouraging an empowered corporate culture, exceptional employee benefits, employee stock ownership programs, and thorough employee training. Starbucks’ policy towards employees is laid back and supportive. Employees are empowered by management to make decisions without management referral and are encouraged to think of themselves as part of the business. Starbucks has avoided a hierarchical organizational structure and has no formal organization chart; however, the company has both functional and product based divisions with some employees