Académique Documents
Professionnel Documents
Culture Documents
Table of Contents
Markets......................................................................................................................9
Market Needs..........................................................................................................10
Market Trends.........................................................................................................10
Market Forecast............................................................................................11
Competition...................................................................................................14
SWOT Analysis.......................................................................................................15
Strengths.........................................................................................................15
Opportunities........................................................15
Strengths.................................................................................................................16
Global Presence. Starbucks has a widespread global presence. The
company operates about 8500 retail store locations, the majority of which
are company owned and operated across32 countries worldwide. The
company’s widespread presence provides prevalent brand recognition and
a strong customer base. .............................................................................16
Weaknesses............................................................................................................17
Lower revenues and income per employee. The company generates lower
revenues and income per employee as compared to the industry average.
Its revenue per employee was $71,544 during fiscal 2004, as compared to
the industry average of $110,841. Furthermore its net income per employee
is $5294 as compared to the industry average of $9500. The company’s
lower returns per employee as compared to the industry average reflect
adversely upon its employee efficiency........................................................18
Market Audit - 3
Opportunities...........................................................................................................19
New products. Starbucks has expanded its beverage categories by signing
an agreement with the wine and spirits group Jim Beam Brands to develop
and market a Starbucks branded coffee liqueur drink. The partnership with
Jim Beam Brands provides Starbucks with access to a nationwide sales and
distribution network. It also offers a partner with a proven track record in
product development and marketing. In the US, cordials and liqueurs
represent a $4-5 billion opportunity and approximately 20 million cases.
Liqueurs flavored with coffee or often mixed with coffee represent a
substantial segment of the liqueur market. Additionally, US specialty coffee
consumption is on the rise. Research indicates that there is a significant
overlap between consumers of liqueurs and consumers loyal to the
Starbucks brand which provides the company a strong revenue potential..20
Threats...........................................................................................21
Marketing Strategy..................................................................................................22
Marketing Mix..........................................................................................................25
Starbucks marketing information has been consistently accurate. When it has
been wrong, sales have exceeded expectations. Based on the SWOT analysis
and industry research, Starbucks current marketing decisions have been extremely
effective and timely. They are targeting the global market, primarily in the Pacific
Rim and Europe. They have increased pricing with little affect on demand. They
have also improved their distribution and protected themselves from a slow US
market. Their products have been consistently updated based on consumer
demand. Success can be somewhat deceiving. Starbucks may have “left money
on the table” by not being more aggressive, more targeted to local segments and
not concentrating their efforts toward the global market. ..........................34
firms looking to enter the market. Starbucks must be aware of competition on all
levels and maintain its operational performance if it is to retain its status as the
world’s leading specialty coffee retailer. The company’s focus on taste, quality
and customer service is consistent with the market segment. The current product
mix is in line with the industry and market forecast. Continual product review,
increase sales. The current product line would be improved through a more
other specialty coffee stores. The company has protected itself from the volatile
coffee prices and could use pricing advantage should the cost of coffee rise.
Customers view Starbucks products from a value perspective rather than a price
perspective, consequently pricing could be increased. Due to the recent price increase
adjustments are not recommended until 2006 or later. More aggressive advertising
would reduce the risk of competition and a slumping US market. Additional marketing
would expand awareness of new programs, generate interest in recent promotion efforts
such as free refills and deliveries, and lead to increased sales of Starbucks non-food
increase global brand image. To keep competitors from entering the US market, the
market and growing global market should shift marketing focus on overseas markets.
Asia and Europe represent 73% of the hot drink market. To maintain Starbucks position
as the premier purveyor of the finest coffee in the world, a doubling of efforts toward
Environmental Aspects
Market Audit - 5
Demographics.
The growth rate of the US has been between 1.10% and .90% from 1999-
2003. The market demands are constantly increasing. Their unique approach to
expansion goes beyond the traditionally accepted methods. Starbucks has broken
the rules and set a new standard amongst its competitors. Starbucks primarily
customers. Starbucks targets both males and females, ranging in age from 18-30
year olds, and middle to upper middle class. Starbucks caters to all needs; they
house team of architects and designers to ensure each store would convey the
right image and character. The company didn’t buy real estate, spaces were
furnishings were used to keep the look of each store consistent, no two stores
Locations of all stores are carefully selected for convenience and Starbucks
specifically targets places that are heavy with pedestrian street traffic. Starbucks
has leased space in supermarkets, airports, and shopping centers. Starbucks has
been successful even with their non-traditional approach towards retail locations.
Market Audit - 6
small area assures that customers have choices, and that the choice remains
Starbucks.
“Not surprisingly, today's most devoted coffee shop patrons are 18- to 34-
year-olds and those with annual incomes over $75,000. Forty-two percent of
18- to 34-year-olds and 46 percent of those who earn more than $75,000
say that when they drink coffee away from home, they head straight for
base, according to the report, while the wealthy simply want the best”
(DAWIDOWSKA, 2002).
Starbucks is quickly becoming known as the best coffee in the world. “Cup
by cup Starbucks has changed the way people from different continents drink
coffee” (Isidro, 2004). Their expansion into numerous countries has them leading
the world in a coffee revolution. Locations include, but are not limited to; Australia,
Austria, Beijing, France, Germany, Greece, Japan, Hawaii, Hong Kong, Malaysia,
its menu when it changes venues. The products are the same weather one is in
does not personalize their coffees or have different products to suit various
countries' tastes.
The table below is a measure of the number of Starbucks stores per 10,000
populations in cities across the U.S., as of March 2005. The cities with the highest
at least 10,000 people, using the 2000 census figures. Supermarkets and other
stores selling coffee beans were not included in the totals. Store locations were
STARBUCKS
COMMUNITY POPULATION
PER 10,000 PEOPLE
Falls Church, VA 10,377 7.7
Katy, TX 11,775 6.8
Greenwood Village, CO 11,035 6.3
Issaquah, WA 11,212 5.4
Palm Beach, FL 10,468 4.8
Littleton, CO 40,340 4.5
Destin, FL 11,119 3.6
Lincoln, CA 11,205 3.6
Sherwood, OR 11,791 3.4
STARBUCKS
COMMUNITY POPULATION
PER 10,000 PEOPLE
Naples, FL 20,976 3.3
Williamsburg, VA 11,998 3.3
Lynnwood, WA 33,847 3.2
Spring, TX 36,385 3.0
Bel Air, MD 10,080 3.0
Alpharetta, GA 34,854 2.9
Fairfax, VA 21,498 2.8
Vienna, VA 14,453 2.8
Freehold, NJ 10,976 2.7
Duluth, GA 22,122 2.7
Grand Haven, MI 11,168 2.7
Brentwood, CA 23,302 2.6
Market Audit - 8
March, 2005
Sources: ePodunk; Starbucks.com; U.S. Census Bureau
Culture
home. Providing a place where people can relax and enjoy top-quality coffee and
“David Chichester, Chief Financial Officer Starbucks Coffee Japan says: “The
orientation during which they spend several days or more actually working at the
store level to get the feel of the Starbucks experience and culture” (Coffee Culture
article). Starbucks culture has been compared to the old Japanese traditional
very seriously. The Corporate Social Responsibility Report addresses many social
concerns and issues important to Starbucks. Concerns addressed include, but are
not limited to; coffee and farmer equity practices, investing in social programs,
issues and sharing with our partners, and fostering diversity and inclusion
Markets
The United States hot drinks market is the largest in the world, accounting
for roughly a fifth of all global sales. Despite this leading position, the market has
been performing badly for a number of years now with growth rates consistently
The US hot drinks market reached a value of $11.9 billion in 2003, having
decreased with a compound annual growth rate (CAGR) of -1.1% in the 1999-2003
periods. This decline went against the general trend of the global hot drinks
market. The decline lead to the US’s market’s global share to decrease by 2
percentage points between 1999-2003, accounting for 19.2% of the global market
by the end of this period. The leading revenue source for the US hot drinks market
in 2003 was the coffee sector, which accounted for nearly 85% of the market’s
value. In value terms the coffee sector was worth $10.1 billion in 2003, a decrease
of 4.9% since 1999. The decline of 4.9% in 1999 made this sector the poorest
performing within the market. The sector showing the best performance was tea,
but even this declined in value by 0.4% between 1999 and 2003.
growth rates. By 2008, the market forecast is to reach a value of $11.7 billion,
which equates to a compound annual growth rate (CAGR) of -0.4% in the 2003-
2008 periods, lower than the global market. Indeed, of all the major hot drinks
markets in the world, the United States is the only one expected to decline in
Market Audit - 10
value. The result of this analysis indicated that the US’s global market share will
Market Needs
geographic expansion strategy that targeted areas which not only had favorable
demographic profiles but which also could be serviced and supported by the
hub cities to support the goal of opening 20 or more stores in the hub in the first
two years. Once stores blanketed the hub, then additional stores were opened in
process, Starbucks created zone vice presidents to direct the development of each
region and to implant the Starbucks culture in the newly opened stores. Each of
the new zone vice presidents Starbucks recruited came with extensive operating
Market Trends
In 2003, the US market accounted for 19.2% of the global hot drinks sales.
Europe remains the largest regional market in the world, accounting for 41.9% of
global hot drinks sales. The Asia-Pacific accounts for a further 31.5% of the global
Much of this decline can be blamed on a consumer shift away from coffee towards
soft drinks, as coffee accounts for a large proportion of hot drinks sales in the US.
products that they sell, possibly learning from the success enjoyed by Starbucks
and their vast range of different flavored coffees. One possible area for product
development is within the herbal and fruit tea sector, particularly considering the
recent American fascination with health and wellbeing. The American tea sector is
in comparison fairly small but still enjoys healthy sales and growth rates. Tata Tea
and Unilever lead the sector with their Tetley and Lipton ranges. Private labels
perform distinctively better in the tea sector than in coffee, managing to claim over
Market Forecast
Market Audit - 12
In 2008, the United States hot drinks market is forecast to reach a value of
$11,653.3 million, a decrease of 1.9% since 2003. The compound annual rate of
Due to the high consumption levels within the US hot drinks market, there is little
Market Audit - 13
Competition
coffee market continues to grow, and an increasing number of firms are looking to
enter the market. The US has the largest coffee sector in the world, and is led by a
number of global players. Procter & Gamble lead the sector with their two major
brands, Folgers and Millstone, covering a variety of whole bean, ground and
instant coffees. Kraft Foods comes in a close second in the sector with its vast
Yuban and Maxwell House. Nestlé is the other large company in the sector, having
a history of success with its Tasters Choice and Hills Brothers brands. It also
introduced the Nescafe brand to the US back in 2002 with a new Frothé line of
instant coffee, and has already experienced strong and expanding sector share.
coffee sales through its specialist coffee shops. Starbucks' closest competitor,
Second Cup, a Canadian franchisor with stores primarily in Canada, was less than
one-third its size. Second Cup, a franchisor of specialty coffees, has stores
located primarily in malls throughout the United States. No other rival has as many
as 250 stores, but there were at least 20 small local and regional chains that
aspired to grow into rivals of Starbucks, most notably New World Coffee, Coffee
SWOT Analysis
the following.
wide variety of hot and cold beverages, as well as pastries and confections,
Strengths Weaknesses
• Global presence
• A disciplined innovator • Reliance on US market
• Increase in revenues and profits • Reliance on beverage innovation
• Clustering of company units • Lower revenues and income per
• Starbucks Corporation is a very employee
profitable organization, earning in • Lower returns on equity than peers
excess of $600 million in 2004.The • Problems in some international
company generated revenue of more Operations
than $5000 million in the same year. • strong presence in the United States
• It is a global coffee brand built upon a of America with more than three
reputation for fine products and quarters of their cafes located in the
services. home market.
• a respected employer that values its • dependant on a main competitive
workforce. advantage, the retail of coffee. This
• committed to a role of environmental could make them slow to diversify
leadership in all facets of our into other sectors should the need
business. arise.
Opportunities Threats
Market Audit - 16
Strengths
company operates about 8500 retail store locations, the majority of which are
base.
Beverages, and in 2003, the "Iced Shaken" refreshments product line was
$5294.2 million during the fiscal year ended September 2004, an increase of
29.9% over 2003. The company’s revenues grew at a compounded annual growth
rate of 25% from fiscal 2000 and fiscal 2004. Furthermore, the operating profit of
the company during fiscal 2004 was $610 million, an increase of 43.7% over fiscal
2003. Its’ net earnings also increased by 46% in fiscal 2004. This significant rise in
revenues and profits provides the company with a strong financial base and
market, the company has looked to expand its business, including those areas
where it has an established presence. Operating on the basis that a critical driver
reward derived from this practice is considerable. Existing outlets are not hurt by
the new stores. A continued strategy of unit clustering, and a focus on stores that
have convenient access for pedestrians and drivers, represents further opportunity
Weaknesses
approximately 85% of its revenue from its domestic US market. The company is an
generating a greater proportion of revenues from outside the US. Should the
growth. Starbucks’ store sales growth has been largely driven by beverage
innovation, but there are questions over how long this can last. Diminishing return
from beverage innovation, one of the company’s competitive strengths, would have
Lower revenues and income per employee. The company generates lower
revenues and income per employee as compared to the industry average. Its
revenue per employee was $71,544 during fiscal 2004, as compared to the
industry average of $110,841. Furthermore its net income per employee is $5294
as compared to the industry average of $9500. The company’s lower returns per
employee efficiency.
Lower return on equity than peers. The company’s five year average
returns on equity have been lower than the industry average. Its five year average
return on equity was 13.65% as compared to the industry average of 15.09%. The
Market Audit - 19
company would need to effectively manage its finances to ensure that returns are
Japanese operations. Also, in 2003 Starbucks Coffee International ended its joint
venture with the Delek Group of Israel. Following this decision, Shalom Coffee
Company, the joint venture between Starbucks Coffee International and the
Delek Group, closed its six Starbucks stores in Tel Aviv. This adversely affects the
international operations of the company and thus the growth prospects in the
region.
Opportunities
Growth in coffee market. The specialty coffee sector accounts for roughly
15% of the US retail coffee market, which is worth $21 billion. By 2005, the retail
coffee market is expected to be worth $22 billion, and the specialty coffee sector
will grow to account for 41% of this market. Starbucks has a market share of over
40% of the specialty coffee market, and the anticipated growth in this category will
offer the company considerable opportunities for further growth and expansion in
an agreement with the wine and spirits group Jim Beam Brands to develop and
market a Starbucks branded coffee liqueur drink. The partnership with Jim Beam
network. It also offers a partner with a proven track record in product development
and marketing. In the US, cordials and liqueurs represent a $4-5 billion opportunity
and approximately 20 million cases. Liqueurs flavored with coffee or often mixed
the next few years. Starbucks expects major expansion potential in China. The
company is also looking towards markets such as Brazil, India, and Russia for
international opportunity. Citing its large urban population, rising economy and
one of its largest markets. In China, the company will continue to focus on current
markets such as Beijing and Shanghai along with rapid expansion in new cities.
These developments will provide the company with new opportunities for revenue
growth.
Market Audit - 21
Threats
Volatile coffee markets. The price and available supply of coffee experience
complications within the producing countries. Barriers may include; weather, and
political and economic conditions which may adversely affect the company’s
business. In the past, the actions of some organizations and associations have
affected the prices of green coffee. This has been accomplished through
operations.
Rising dairy costs. The company faces the threat of rising dairy costs. Dairy
prices have risen considerably and this could adversely affect Starbucks’ margins.
Raw milk prices in 2004 are expected to be above the 2003 levels. Milk and other
its US store growth potential. If current growth continues, saturation levels within
the North American retail division will be reached within five years. This represents
a considerable concern for Starbucks, given that over the last two years, domestic
retail has been the source of about 75% of the company’s revenue growth and an
Market Audit - 22
even greater proportion of profit growth. Before reaching saturation point, US retail
sales growth will slow considerably over the next three to five years, further
Marketing Strategy
The Starbucks Mission Statement and Six Guiding Principles are foundation
grow.
1. Provide a great work environment and treat each other with respect
and dignity.
business.
Starbucks revenue had more than doubled since 2000. For the year ended
revenues of $5.29 Billion for the year ended October 3, 2004. Starbucks has taken
a very aggressive approach to opening new stores both in the United States and
around the world. Based on their track record it is difficult to disagree with their
tactics. All Starbucks coffee shops opened in the United States are owned by the
expanded into 35 countries outside of the United States. The following is a list of
the international store counts for each country: (SEC filing 10-k)
increase in sales (and profits) is directly related to these three areas of growth.
Market Audit - 24
“In fiscal 2004, the Company expanded its licensing relationship with Kraft
and warehouse club stores throughout the United States. Kraft manages all
Starbucks. By the end of fiscal 2004, the Company’s coffees and teas were
from this category comprised 27% of specialty revenues in fiscal 2004. The
equity interest: The North American Coffee Partnership with the Pepsi-Cola
DoubleShot® coffee drinks; and the Starbucks Ice Cream Partnership with
Dreyer’s Grand Ice Cream, Inc., develops and distributes superpremium ice
creams. In fiscal 2004, the Company entered into an agreement with Jim
United States. The Company conducted tests of this product in two U.S.
markets in the fiscal fourth quarter and expects to introduce the product
nationally during the fiscal second quarter of 2005 in retail locations licensed
to sell distilled spirits, such as restaurants, bars and retail outlets where
Market Audit - 25
premium distilled spirits are sold. The Company will not sell the liqueur
2004“ (www.starbucks.com/aboutus/investor).
an increase of 38.1% over fiscal 2003. The specialty foodservice and other
fiscal 2003.
Marketing Mix
company to ensure that the desired level of sales will be achieved in Starbucks’
target markets.
Product Strategy
products and the enhancement of existing products. This strategy achieves both
the advantage of introducing product evolution within the company and the
retention of old and existing products that symbolizes the Starbucks tradition. The
company's retail sales mix was roughly 61 percent coffee beverages, 15 percent
and equipment. The product mix in each store varied, depending on the size and
goods so that consumers spend more time and money in their stores. In addition to
equipment, filters, storage containers, and other accessories for sale. Food
products include pastries, hot and cold sandwiches, salads, breakfast sandwiches,
and tea. As of 2001 Starbucks began to offer wireless Internet to patrons and later
this year, plans to increase the stores music products by implementing CD burners
Starbucks Ice Cream, and Starbucks Coffee House Blend brand. The RTD drink
who are always in a hurry. Thus, Doubleshot is a Starbucks product that is “the
Market Audit - 27
ideal way to start a busy day!” Meanwhile, Starbucks had moved to expand its
supermarket sales of ice cream (available in 6 flavors), the Doubleshot, and their
whole beans. The special signature brand House Blend Coffee of Starbucks
introduces a new way wherein home-based consumers will also enjoy the
from African, Arabian, to French Roast flavors), customized to fit the coffee-lover’s
taste and need for new, yet, equally delicious taste of the traditional Starbucks
coffee.
enhanced its existing products in order to create diversity and added features to
the traditional lineup of coffee beverages and services. Customers play a large
part in this; feedback has been the catalyst for many new products and services
strategy with its existing products is the introduction of the Tazo Tea and Crème
That is, new flavors and variations of the said product were introduced.
available everywhere, especially where Starbucks retail stores are not available.
Market Audit - 28
With the introduction of prepaid purchase cards and the ability to preorder
via the telephone and online, Starbucks has enhanced their ability to assist
consumers with orders and purchases. Starbucks also introduces seasonal drinks
to its menu for the holidays, the Pumpkin and Gingerbread lattes have become
Pricing Strategy
especially since many specialty coffee shops are emerging after Starbucks’
success in the commercial market. In 2004, prices of nine chains in eight cities,
including Seattle, were compared to see how the coffee company fared against
companies such as Tully's Coffee Corp, Peet's Coffee & Tea, and Coffee Bean &
Tea Leaf. The result: Starbucks regular coffee was 4 percent less expensive and
its iced blended drinks were as much as 30 percent less expensive when
compared with specialty competition. Increased milk and green coffee bean prices
average of 11 cents per cup. Starbucks last price increase, during August of 2000,
was an average of about 7 cents per cup in August 2000. With whole bean prices
ranging from a minimum of $8 and a maximum of $18, Starbucks coffee are in the
average price range for the specialty coffee market. These prices are maintained
rate. By marketing their products and developing a culture, it is not the price
Distribution Strategy
adapts the Corporate Vertical Marketing System (or Corporate VMS) wherein a
corporation owns and operates its own production facilities, warehouses, and retail
stores.
Starbucks Corporation uses coffee beans which are directly produced for
the company. Through the company’s funding, coffee farms in Mexico and Latin
Establishment of the company’s own coffee farms reduces the problem of quality
coffee beans often encountered by specialty coffee shops like Starbucks. Under
the company’s supervision, coffee beans are produced and categorized according
to their unique taste and quality: the Fair Trade blend, Organic, Farm Direct
primarily in Mexico.
does not allow franchising; rather, licensed stores are only allowed, giving the
Market Audit - 30
Starbucks Corporation full control of the management and operations of the retail
store. This policy is applied in both domestic and international business operations
coffee despite the different locations and environment in which the store is located.
coffee taste regardless of nationality. Using the Corporate VMS allows Starbucks
system. Ensuring that the company’s products adhere to the Starbucks’ standards
beginning with the raw ingredients and concluding with the finished product.
The Starbucks Company has had notable success in identifying top retailing
sites for its stores. The company has the best real estate team in the coffee-bar
identify the most attractive individual city blocks and the best store location. The
company’s site location track record is so good that as of 1997 Starbucks only
“Today the company that weaned us away from the free mud in the office
kitchen and hooked us on $3 tall double caramel macchiato (with nonfat milk,
please) has 5,945 stores in the United States and 2,392 more overseas and in
Promotion Strategy
Publicity Strategy
public service announcement to gain publicity about the company’s products and
press releases and conferences, and is often used when launching a print and/or
main publicity strategy. Through the promotion of programs and activities that aim
project to the consumers the good and quality product that the company is
that promote Starbucks’ social responsibility to its consumers are evident through
of Seattle Hometown and Zion Preparatory Academy, and grants such as library
Advertising Strategy
Print ads and broadcast (television) are the primary media source Starbucks
are TV ads that promote the bottled Frappuccino and Starbucks Doubleshot
products. These ads are both 15 minute-ads that are strategically played ‘back-to-
back’ for greater brand and product retention. Starbucks mainly uses product
most of the company’s advertising campaigns are through the broadcast media.
everyone to receive information about Starbucks and its products. Similarly, print
media are therefore useful in proliferating the Starbucks Coffee Company and its
of the company’s services through the Office Beverage Service and Office Delivery
continuing supply of Starbucks coffee without going into the nearest Starbucks
coffee shop. The Office Coffee Provider service offers the traditional Starbucks
coffee using a special thermal brewing system that will be supplied to the office
Market Audit - 33
(consumers). Starbucks coffee in retail packs are also available and can be
consumers.
sales, its Starbucks Card is a special sales promotion program that helps
this Starbucks Card can take advantage of the company’s special promos and
deals, which includes discounts, special gifts and rewards, and other Starbucks
Conclusion/Recommendations
Market Audit - 34
has been wrong, sales have exceeded expectations. Based on the SWOT
analysis and industry research, Starbucks current marketing decisions have been
extremely effective and timely. They are targeting the global market, primarily in
the Pacific Rim and Europe. They have increased pricing with little affect on
demand. They have also improved their distribution and protected themselves
from a slow US market. Their products have been consistently updated based on
“left money on the table” by not being more aggressive, more targeted to local
segments and not concentrating their efforts toward the global market.
premier purveyor of the finest coffee in the world while maintaining our
objectives for sales and revenue have consistently been achieved. The critical
issue for Starbucks is the decline of the US hot drinks market. To take advantage
mitigate the risk from the downturn of the US hot drinks market.
competitors.
REFERENCES
Datamonitor Business Information Center Hot Drinks in the United States Industry
Profile November 2004
LINN, A. Starbucks Hopes to Expand in 2002 Associated Press February 27, 2002
Retrieved May 26, 2005 from
http://www.organicconsumers.org/starbucks/expanding2002.cfm