Article about The Starbucks.

Starbucks was founded in 1971, when the consumption of coffee in the U.S. declined for almost a decade. At the time, usually people had coffee with a meal at a diner or restaurant, and also, small coffeehouses with specialty coffee roasters were built in some cities such as San Francisco and New York. Starbucks’ aim was to provide great coffee.

By 1982, Starbucks had sold beans and supplies for brewing coffee at home, however, did not sell beverages throughout 5 retail outlets. Since 1986, Starbucks started to sell espresso, espresso-based drinks such as cappuccino, and food items, as well as whole-bean coffee. One of the strengths of Starbucks is that Starbucks coffee is different from typical American coffee as it provided European-style flavor from its own special facility. In addition, in Starbucks, a barista plays a key role in its unique coffee flavor by making coffee drinks in the appropriate temperature, and the proper amount of foam, while chatting with customers. Therefore, more and more customers were attracted to Starbucks. In addition to this, customers believed that when they drank Starbucks, they felt that they were better than others. From 1996 to 2006, Starbucks expanded its business with two initiatives 1) selling their products using plenty of distribution channels, 2) drastically expanding its retail outlets.

On the other hand, the significant weakness of Starbucks is the price of coffee which was not cheaper than other coffee sold in fast food restaurants, or convenience stores.

In terms of Starbucks’ first initiative, Starbucks not only used mass distribution channels but also made licensing agreements with the hospitality industry such as United Airlines, and Hyatt hotels. Moreover, with regard to the second initiatives, some media demonstrated sarcastic comments, which could have been considered as a threat. However, CEO, Schultz overcame such criticism by commenting,

They found we were filling a need they didn’t know they had.

However, since 2006, the emergence of competitors has become a threat to Starbucks. Further, fast food restaurants such as McDonalds, and Dunkin also started to offer coffee drinks with aggressive marketing. Finally, in 2008, the financial result of Starbucks was the worst since it was founded. When Schultz came back to Starbucks as CEO, he made a decision to close almost a thousand outlets that would be forecast not generate enough revenue even though modifications were made to operations (Exhibit 4).

By reducing the number of stores, Starbucks aimed to decrease operating costs. Finally, Starbucks was able to reduce operating costs in 2009 through saving procurement, and labor cost, and enhanced logistics. During this time, Starbucks also changed coffee roast to Pike Place Roast. Previously, Starbucks coffee taste was different depending on a day or a different store as coffee bean, or roast was related. In spite of these efforts, the stock price of Starbucks was declined over the 15 months.

In regard to an opportunity, Starbucks started new growth initiatives in 2009. It was a strategy to be away from the store. Terminating the relationship with Kraft provided Starbucks with an opportunity to offer an instant coffee. Furthermore, single-serve pod coffee has become another opportunity for Starbucks. For example, in 2010, single-serve machines and coffee market reached $509 million, which was doubled from the previous year.