Making Jaun Proud

The Company is organized into a number of business units. The Company's North American retail business sells coffee beverages, whole bean coffees and related hardware and equipment through company-operated retail stores in the United States and Canada. The Company's international retail business consists of entities that own and operate retail stores abroad. These two retail segments are managed by different presidents within the company and are measured and evaluated separately by senior management. The Company operates other business units as well and each is managed and evaluated independently. These other business units are organized around the strategic relationships that govern the distribution of products to the customer. These relationships include retail store licensing agreements, grocery channel licensing agreements, wholesale accounts, and joint ventures.

Starbucks Corporation and its subsidiaries buy and roast high quality whole coffee beans. To insure high quality of the product, Starbucks built three roasting plants of it's own, where highly trained and experienced personnel monitor roasting of beans. Quality standards are so high that entire batches are thrown away after testing if qualifications differ from acceptable standards. Later, beans are sold in primarily company-operated stores along with fresh, rich-brewed coffee, Italian-style espresso beverages, decaffeinated beverages, cold blended beverages, a variety of pastries and confections, coffee-related accessories and equipment, and a line of premium teas. Starbucks sees its success in constant development of its products to bring new experiences and ideas to loyal customers of their coffee-empire. High quality of a product that will appeal to coffee lovers around the world is Starbucks main consideration.

Starbucks sells a lifestyle, to customers and employees alike. It has learned from the experience of Pepsi and others to link its brand to new trends. Starbucks' success could be attributed to an objective to meet their customer's needs, and innovative new product offerings. Selecting a marketing strategy based on a product mix is a key to Starbucks success. Coffee is the second most traded commodity in the world (McMahon, 2001), and as a result, Starbucks was forced to adopt a high product differentiation strategy. This strategy differentiates the company from the competition, making its product unique, by targeting quality, service, and the price conscious customer. Starbucks retail stores are usually located in high-traffic locations and high visibility areas. To reduce risk of failure and economic fluctuations, properties for the stores are leased. Brand name recognition of Starbucks therefore comes from people being frequently exposed to it. As a result, Starbucks carefully selects their market and store locations.

Even though global supply chains allow for cost reduction, they are much more complex than domestic ones, and call for tight controls. Since coffee prices are unstable due to weather, export regulations, economic, and political conditions in the growing countries of Colombia, Indonesia, Costa Rica, and others, it is not surprising that Starbucks is concerned with the supply and prices of this commodity. Starbucks enters into fixed-price purchase commitments and/or purchased futures contracts to secure the company from the danger of price fluctuations and supply shortages. The Vice President for coffee travels regularly to coffee-producing countries to build relationships with growers and exporters, and find products that would meet Starbucks' standards of quality and flavor. The Company believes that based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote.

PepsiCo and Starbucks entered into a joint venture in 1994. Efforts were combined towards the creation of a new cold coffee drink in bottles and their mass distribution through the Pepsi channels. The joint venture with multinational giant Pepsi gave great international exposure to Starbucks, and shifted the business into untapped markets. While the first product, Mazagran, resulted in failure (Cheddar, 2005), bottled versions of Frappuccino tested in 1996 succeeded and led to the partnership investment of three bottling facilities to make Frappuccino.

The company does not offer franchising opportunities, though in recent years Starbucks has begun entering into a limited number of licensing agreements for store locations in areas where the company was not able to locate their shops due to limits in capability. There is a great deal of value in transferring knowledge and procedures between parts of a global firm. To protect Starbucks quality brand, information is carefully shared with licensees through training, at the same time the Company assures tight strategic control. Therefore, to maintain its mission of making