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Starbucks

Case Analysis
J une 30
2013
Crafting &Executing Strategy


Group 3:
1. Le Van Manh
2. Le Bao Long
3. Tran Thi Minh Phuc
4. Pham Thi Phuong Thao
5. Nguyen Minh Thu
6. Pham Ngoc Mai
7. Le Pham Nhat Linh
8. Le The Vinh
Class: Advanced Finance 53A
Instructor: Dr. Deane Pham, MBA, Ph.D.
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Content

Executive Analysis... 2
Case Analysis
Vision 3
Changing Strategy 4
Generic competitive strategies. 5
Key policies, practices, business principles. 6
Core values.. 8
Social responsibility strategy (CSR)................... 9
Financial performance 11
Top management issue. 12
Ongoing issues . 13
Recommendation . 14












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I/ Executive Summary
With more than 18,000 stores in 62 countries around the world, Starbucks is currently
one of the biggest companies in the food and beverage industry, with total revenue of 11.7
billion dollars in 2011. Under the current leadership of Mr. Howard Schultz, Starbucks
mission is to inspire and nurture the human spirit one person, one cup, and one
neighborhood at a time. From its very first start, Starbucks only offered its products through
its retail stores, but since the mid-1990s, it started expanding to pursue sales of its products in
a wider variety of distribution channels and market segments. Currently, customers can get
Starbucks products not only at its retail stores but also at hotels, restaurants, office coffee
distributors, educational and healthcare institutions; and at Starbucks retail stores, not only
coffee but also tea, fruit juice, and food are offered. Recently, Starbucks is targeting in Asia
area, which, according to Mr. Howard Schultz, clearly represents the most significant growth
opportunity on a go-forward basis, as well as maintaining its expansion in the Europe, the
Middle East, Russia, and Africa.
In spite of excellent growth and performance, Starbucks is currently facing some
critical issues about competing price, expansion and change in leadership that may affect the
companys performance in the future. The recession in mid -2010 caused many customers to
reduce their demand for Starbucks coffee as its higher price than that of competitors coffee.
Moreover, there are challenges of expanding internationally because it requires the company
to put great deal of money and effort on market research, promotion, and installation in new
markets. From 2000 to 2008, the company experienced changes in its top management as
Howard Schultz decided to relinquish his roles as CEO. However, it was showed there had
not been anyone who could handle the giant structure of the company as effectively as
Howard.
To solve these problems, Starbucks needs to have several solutions done at the same
time. First, to keep the flow into Starbucks even during the recession, it could either lower
price of current products or offer special deals such as a buy one get one free offer during
non-rush hours. Second, as Starbucks current strategy is to exploit Asian market, it could
first start with China and J apan markets before going into India or Vietnam, etc. These are
two big markets, and people may have already known about Starbucks. Finally, about top
management change, it might consider a training program for top managers like letting them
be in charge of a particular Starbucks market.
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II/ Starbucks Case Analysis
1. Vision
In 1981, 1 year before official working for Starbucks, Howard Schultz had the idea about
the tremendous potential of expanding Starbucks enterprise outside Seattle and exposing
people all over America to Starbucks coffee. Despite unclearly, it may be considered as the
original strategic vision for Starbucks from localization to nationalization.
His original strategic vision had some changes in 1983 when Howard Schultz returned
from Milan, Italy, and realized that there was much more to the coffee business than just
selling beans and getting people to appreciate grinding their own beans and brewing fine
coffee in their homes. What Starbucks need to do was serve fresh-brewed coffee, espressos
and cappuccinos in its stores (in addition to beans and coffee equipment) and to try to create
an American version of the Italian coffee bar culture. Going to Starbucks should be an
experience, a special treat, a place to meet friends and visit.
When Starbucks became a private company in 1987, Schultz told that his vision was for
Starbucks to become a national company with values and guiding principles that employees
could be proud of. He aspired for Starbucks to become the most respected brand name in
coffee and for the company to be admired for its corporate responsibility.
After 1992, his strategic vision changed from nationalization to internationalization. In
the mid-1990s, Howard Schultz began a long-term strategic campaign to expand both of
Starbucks locations and product offerings. In 1996, Starbucks opened a store in J apan,
which is the first store outside of North America.
In the period of 2008-2010, Schultzs vision for Starbucks is to become new plateaus of
differentiation and innovation, renewed global expansion of Starbucks retail store network.
It is quite clear that Howard Schultz has changed his strategic vision three times:
nationalization, international expansion, vertical and horizontal integration to expand product
offerings and enter new market segments.
The strategic vision for Starbucks in 2011-2012 is likely to undergo further evolution. In
J anuary 2012, Schultz said: Starbucks future has never been brighter. Our foundation has
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never been more solid. We areremarkably well positioned to pursue our diversified,
multichannel, multibrand business model.

2. Changing strategy
It can be stated that Starbucks strategy has evolved as the strategic vision evolved.
When Howard Schultzs vision was for Starbucks to become a national company and
an American version of the Italian coffee bar culture, Starbucks strategy was to change its
stores in terms of design, ambience, and expansion of location. For example, from the outset,
the strategy was to open only company-owned stores; franchising was avoided so as to keep
the company in full control of the quality of its products and the character and location of its
stores. However, company-ownership of all stores required Starbucks to raise new venture
capital to cover the cost of new store expansion. Thus, the strategy evolved into Starbucks
everywhere, which had been to blanket major cities with Starbucks stores.

When Schultzs vision was for Starbucks to become global organization, the strategy
evolved. Starbucks not only opened licensed stores, but also expanded internationally. In
markets outside the United States, Starbucks had a two-pronged store expansion strategy:
either open company-owned-and-operated stores or else license a reputable and capable local
company with retailing know-how. It is a clear example thatStarbucks strategy has evolved
as the strategic vision evolved.







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3. Generic competitive strategies
There are five generic competitive strategies as below:

Starbucks seems to fit the generic strategy of broad differentiation because they seek to
differentiate the companys product offering from rivals with superior attributes that will
appeal to a broad spectrum of buyers. They provide a high quality coffee and unique
experience in the convenience of a larde volume of locations, which separates them from
their competitors.
First, inputs quality can ultimately spill over to affect the performance or quality off the
companys end prosuct. Starbucks gets high ratings on its coffees partly for the reason that it
has very strict specifications on the coffee beans purchased from suppliers. The company
purchases only the finest Arabica coffees and puts them through a meticulous dark-roasting
process to bring out their full flavors. Top quality, fresh-roasted, whole-bean coffee is the
companys differentiating feature and a beadrock value.
Second, to serve diverse consumer preferences, Starbucks offers numerous products
including many different types of coffee such as VIA, Pike Place Roast, K-Cup Portion Packs
together with lattes, drinks, fruit cups, bakery items, etc.
Third, Starbucks opens a lot of stores internationally. These store systems are designed
as an attractive and relaxing after-work destination for customers to heighten the third
place Starbucks experiences. Core design characteristics includes the celebration of local
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materials and craftsmanship, the exposure of structural integrity and authentic roots, the
absence of features that distracted from an emphasis on offee, seating layouts that facilitated
customer gatherings, an atmosphere that sought to engage all five customer senses and
flexibility to meet the needs of many customer types. The company makes sure that the store
fixtures, the displays, the colors, the artwork, the banners, the music and the aromas all
blanded to create a consistent, inviting, stimulating environment that evoked the romance of
coffee and signaled the companys passion for coffee. Additionally, menu offerings in
Starbucks stores are typically adapted to local cultures while still brings American style.
Although Starbuck coffee is not cheap, it attracts many customers in the world for its
differentiation, as Howard Schultz observed: Almost unlike any retailer or restaurant, we are
completely vertically integrated. We source coffee from 30 countries. We have a proprietary
roasting process. We distribute to company owned stores and finally serve the coffee. Others
are resellers of commodity-based coffees.

4. Key policies, practices, business principles.
Although Starbuck has gained succeed worldwide, Schultz still see many challenges
ahead. Therefore, along with top management Schultz is planning his next strategic move for
continued success.
In 2004 Starbucks main strategy for continued growth is to expand its foreign market.
Top management believes it can grow revenues by 20 percent outside the United States by
increasing global opportunities making Starbucks one of the world preeminent global brands.
In addition, top executives want to test markets where there is no current Starbucks presence.
Other key elements of Starbucks strategy is to improve ways to display corporate
responsibility, be protective and sensitive to environmental conservation, continue to say yes
to customer requests, pursue new distribution channels, continue to purchase top-quality
coffee beans to meet Starbucks standards, introduce new drink products and strategize to
attract customers who dont drink coffee. Top Management will continue to seek ways to
measure customer and employee satisfaction. Howard Schultz believes the company has to
challenge the status quo, be innovative, and take risks to develop its next successful strategy
path.
Overall, based on the five phases of strategic management I give Howard Schultz an
A. Schultz has performed an excellent job leading the development of Starbucks strategic
vision. However, because Schultz borrowed the idea of the successful espresso bar and the
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barristers making specialty drinks I was torn between giving him an A/A-. I went with the
higher grade because he has the ability to fine-tune the idea to meet the needs of his
customers. In addition, Schultz effectively communicated his strategic vision to his staff
creating a sense of buy-in down the line to lower-level management and employees. Shultz
was a visionary for the start forming a strategic path for Starbucks to pursue. In regards to the
companys future direction, Schultz was clear on the long-term goals for Starbucks, however,
he has the ability to know when to modify products and services and the market position
Starbucks should stake out. His vision, for Starbucks to become the most respected brand
name, was linked with company values: employee and customer satisfaction, quality coffee, a
pleasant environment to build a company that valued and respected people. Shultz
continually reinvented the way Starbucks did business as his vision evolved.
Shultz was very realistic in regards to his financial and strategic objects for Starbucks. He
envisioned Starbucks to gain financial performance. One of Starbucks main goals was
expansion. One thing that helped them become successful was the foresight of Shultz. By
hiring executives who were had a strong knowledge on what was currently needed and by
building more production facilities that were far larger than was necessary at the time, the
need to worry about not being able to handle a quicker expansion of their stores was
compensated for. Next is make the performance of its employees be better. First of all,
creating a training program for new hires was key in meeting Starbucks strategy for customer
satisfaction. Building a supportive work environment was a smart move by Schultz. Putting
in place improved employee benefits such as health plans for part-time staff, bonuses,
competitive wages, and making it possible for employees to become partners by offering
stock options sharing in the companys success resulted in employee satisfaction.
Consequently, employee satisfaction increased customer satisfaction because happy
employees create a happy atmosphere. In addition, listening to what people want and
enhancing the stores ambience making it a comfortable third gathering place for customers to
enjoy coffee and people or relax quietly alone adds to the success of Starbucks strategy.

5. Core Value
The core values of Starbucks:
The cornerstone value in their effort to build a company with soul was that the
company would never stop pursuing the perfect cup of coffee by buying the best beans and
roasting them to perfection.
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The core values Starbucks 1990 October, 2008
Provide a great work environment will help us measure the appropriateness of our decisions
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.
Recognized that profitability is essential to our future success.
The core values Starbucks October, 2008 - Present
The values that Starbucks consider important are included in their mission statement and those are:
Our Coffee
It has always been, and will always be, about quality. Were passionate about ethically sourcing the
finest coffee beans, roasting them with great care, and improving the lives of people who grow
them. We care deeply about all of this; our work is never done.
Our Partners
Were called partners, because its not just a job, its our passion. Together, we embrace diversity to
create a place where each of us can be ourselves. We always treat each other with respect and
dignity. And we hold each other to that standard.
Our Customers
When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers
even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our
work goes far beyond that. Its really about human connection.
Our Stores
When our customers feel this sense of belonging, our stores become a haven, a break from the
worries outside, a place where you can meet with friends. Its about enjoyment at the speed of life
sometimes slow and savored, sometimes faster. Always full of humanity.
Our Neighborhood
Every store is part of a community, and we take our responsibility to be good neighbors seriously.
We want to be invited in wherever we do business. We can be a force for positive action bringing
together our partners, customers, and the community to contribute every day. Now we see that our
responsibility and our potential for good is even larger. The world is looking to Starbucks to set
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the new standard, yet again. We will lead.
Our Shareholders
We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our
shareholders. We are fully accountable to get each of these elements right so that Starbucks and
everyone it touches can endure and thrive.


Starbucks connects to present strategy and to the manner in which the company
conducts its business very well.
In detail, Starbuckss coffee sourcing strategy has three key elements:
- Make sure that the prices Starbucks paid for green coffee beans was high enough to
ensure that small farmer were able to cover their production costs and provide for their
families.
- Utilize purchasing arrangements that limited Starbucks exposure to sudden price
jumps due to weather economic and political conditions.
- Work directly with small coffee growers, local coffee-growing cooperatives, and
other types of coffee suppliers to promote coffee cultivation methods that protected
biodiversity and were environmentally sustainable.

6. Social responsibility strategy (CSR)
Howard Schulzs main effort to build a company with soul includes an extensive social
responsibility strategy. He wanted to make sure that Starbucks had a way of doing business
that as both socially and environmentally conscious. His beliefs were that the way to build a
great, enduring company is to strike a balance between profitability and a social conscience.
In 2008-2012, Starbucks corporate social responsibility strategy had four main elements:
Ethically sourcing all of the companys products: This has to do with their activity in
buying from suppliers who had a demonstrated commitment to social and environmental
responsibility. Starbucks had recently instituted set of Supplier social responsibility. Besides,
no genetically modified ingredients were used in any food or beverage products. Starbucks
were willing to discontinue to purchase from unqualified suppliers due to standard issues.
Community involvement and corporate citizenship: Starbucks strives to be active
within the communities they reside in. They have a goal of contributed their partners and
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customers 1 million hours of community service by 2013. Starbucks also created the
Starbucks Youth Action Grants in order to help young people get involved in community
improvement projects.
All of these community involvements are key in Starbucks CSR initiatives.
Environmental stewardship: Starbucks also strives to decrease their waste, use
renewable energy, increase recycling, make facilities more green, and overall to help address
the climate change more. They have set many goals such as by 2015 to ensure hat all of its
cups were reusable or recyclable, to have front-of-store recycling in each store, and to reduce
water consumption by 25%. Starbucks also entered the Business for Innovative Climate
Change and Energy Policy coalition in 2009.
Charitible contributions: Starbucks has given millions to coffee farmer loan funds in
order to support the small family farms Starbucks uses as coffee suppliers. Their
contributions to other organizations including nonprofit organizations, funds, and activities in
some fields such as education and health care were also remarkable. They have also
committed money to hurricane Rita and Katrina victims, as well as to help the devastation
after the earthquake in Haiti.
All of these initiatives have led to a very positive image for Starbucks who in 2010 was
named to the Corporate Responsibility Magazines 100 Best Corporate Citizens and it was
the 12
th
time that Starbucks had been named to the magazines list. In addition, Starbucks had
received over 25 awards from a diverse group of organizations for its philanthropy,
community service and environmental activities. All these evidences prove that Starbucks
reputation is not based on their words but their actions. It helps reach their socially
responsible consumers who require the companies they buy from to be good corporate
citizens.

7. Financial Performance
The following aspects of Starbucks financial operating performance ought to be
identified:
Starbucks net revenues grew from 9411.5 million in fiscal 2007 to 10383 million in
fiscal 20008 and fall to 9774.6 million in fiscal 2009 after that. Additionally, from the
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October month of fiscal year 2009 through October month of fiscal year 2011, Starbucks net
revenue grew from 9774.6 in fiscal 2009 to 11700.4 in fiscal 2011, equal to a compound
average growth rate of 6.18%.
From the October month of fiscal year 2007 through October month of fiscal year
2011, Starbucks net profit grew from 672.6 million in fiscal 2007 to 1245.7million in fiscal
2011, although net profit in fiscal 2008 decreased to 315.5 million and increased afterward to
390.8 million in fiscal 2009, which was still below net profit in 2007, equal to a compound
average growth rate of 13.12%.
Starbucks gross profit margin was 57.7% in fiscal 2011, versus 58.36% in fiscal 2010
and 55.26% in fiscal 2008.
Starbucks operating profit margin in fiscal 2011 was 14.77%, versus 13.26% in fiscal
2010 and 5.74% in fiscal 2009.
Starbucks net profit margin in fiscal 2011 was 10.64%, versus 8.83% in fiscal 2010
and 5.75% in fiscal 2009- there are respectable increases from a shareholders perspective.
Starbucks diluted net earnings per common share in fiscal 2007 was 0.87dollar,
which fall to 0.43 dollar in fiscal 2008 , however, Starbuck s diluted net earnings per
common share grew from 0.43 dollar in fiscal 2008 to 1.62 dollar in fiscal 2011, equal to a
compound average growth rate of 30.38%.
Starbucks selling, general operating expenses as a percentage of net revenues were
51.07% in fiscal 2009, 46.49% in fiscal 2010, and 44.67 in fiscal 2011- such operating
efficiency gains in SG&A expenses are highly positive suggest good expenses con trolls are
being exercised by Starbucks top management.
Worldwide average sales at company -operated stores was 5% in fiscal 2007 and 7%
in fiscal 2010 and 2011, while it was (3)% in fiscal 2008 and (5)% in fiscal 2009
Starbucks return on stockholders equity investment was 28.4 in fiscal 2011, versus
25.73 in fiscal 2010
The balance sheet section of case EXHIBIT 1 indicates that Starbuck has increased
the size of current asset significantly every year since 2007
The cash flow section of case EXHIBIT 1 shows strong gains in net cash provided by
operating activities and, perhaps more importantly, the net cash provided by operating
activities greatly exceeds the amount the company is spending annually on capital
expenditures. Moreover, Starbuck is generating ample cash flow to fund the companys
growth from internal fund and equity rather than having to borrow monies and incur growing
amount of long-term debt.
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8. Top Management Issue
Howard Schultz has done a good job since his return as Starbucks CEO because before
the Schultzs return, under Donalds leadership, the companys stock price drifted downward
through much of 2007, customer traffic in Starbucks store in the US began to erode in 2007.
Immediately upon his return as Starbuckss CEO, Schultz revamped the companys executive
leadership team and changed the roles and responsibilities of several key executives. He also
made a good decision when hiring a former Starbuck executive to fill newly created position
of chief creative officer responsible for elevating the in-store experience of customers and
achieving new levels of innovation and differentiation. The result of Schultzs cost
containment and efficiency campaign is determined- the productivity of Starbucks employees
in US company-operated retail stores increased from an average of 9.8 transactions per labor
hour in fiscal 2008 to 11.3 transactions per labor hour in fiscal 2011. In addition, the
percentage change in sales at company- operated retail store open at least 13 months has risen
from -9 percent in Q1 of fiscal 2009 to +4 percent in Q1 in fiscal 2010 to +9 percent in Q3 of
fiscal 2010 and then remained in the range of +7 o +9 percent every quarter through Q2 of
fiscal 2012.

9. Ongoing Issues
Issues as of mid-2012
Higher cost: commodity costs for commodities that can only be partially hedged, such
as fluid milk and high quality Arabica coffee, construction costs associated with new store
openings and remodeling of existing stores. Starbuck need a large amount of money in order
to manage efficiently chains of global Starbucks store
Poor global economic conditions: customers spend less money for discretionary
purchases as a result of job loss, foreclosures, bankruptcies, increase fuel and energy costs
Risk from competitors: Starbuck must face intense competition in each of our
channels and markets, which lead to reduced profitability. Increased competition in the US
packaged coffee and tea and single served and ready-to-drink coffee beverage markets,
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including from new and large entrants to this market, could adversely affect the profitability
of the Channel Development segment
Difficulties in recruiting and retaining qualified personnel: when Starbuck entered
new market, such as Viet Nam, it take a long time to recruit, motivate, train and inspire
management and new employees about strategic, value and mission of company. The process
was always ongoing in order to give customers a superior in-store experience.
Differentiation: Again, as they move into new markets they will need to do significant
research to find out what those consumers value. They need to be able to give it to them in
order to achieve their goal of being the heart of the neighborhood.
Coffee prices: Coffee prices fluctuate significantly due to weather, economic, and
political conditions in the countries where they are grown.
What should management be worried about?
Management should be worried about offering high-quality products. If they cannot
prove that their product is better due to quality or differentiating features then locations that
sell coffee and consumers are already loyal, they will have issues drawing consumers away.
However, Starbucks does have an extremely strong brand image and hype associated with
their name, which is an asset for them in entering new markets.

10. Recommendation

Recommendations
Coordinate with suppliers to address consumers needs better: By coordinating with
the farmers and growers they source their beans from they will be able to add value to their
product. They have been doing this by purchasing Fair Trade coffee and organically grown
products. They need to continue to increase this initiative and to take part is environmentally-
friendly initiatives that add value to their customers.
Increase incorporation of tangible features that increase customer satisfaction: This is
an important aspect in delivering superior value via a broad differentiation strategy. This
involves adding product specifications, functions, and styling. One way that Starbucks can do
this is by offering delivery of coffee within a certain distance by bicycle. This way they will
incur little costs and be using environmental transportation methods, while adding value to
the customers. They need to continue to know the customers in the area where they are
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opening a store in order to offer them the store environment they want. For example a store
versus a kiosk, versus a drive through location.
Increase marketing spending: Create a marketing campaign that focuses on adding
intangible features to their products. This will increase the value added to the customers
product in non-economic ways. Their marketing campaign should highlight on their CSR
campaign to increase consumers knowledge of how they support the environment, their
neighborhoods, and suppliers. This will add value to the product, because consumers will
know what their money is going to.
Focus on the core: In order to successfully implement any of these strategies the core
of Starbucks business model: customer service, marketing, brand management, and
technology must be strong so that they can successfully implement value additions. Schultzs
strategy that began in 2008 focused on this a lot, so continued actions should be taken to
become more passionate about customer relationships and build up the brand name more.
Manage costs: An overspending on efforts to differentiate their products could lead to
an erosion of profitability. Marketing and R&D are expensive to implement, which is why it
is so important for them to first focus on the core of their business. Good customer service
will help them out because it doesnt cost them any extra. There are small differentiations that
they can add, such as offering delivery services or catering for a business meeting.
Take caution with price premium: Starbucks charges a significant amount of money
for their coffee, but they should be careful that they dont turn their product into too much of
a treat, a product that people cant afford to indulge in every day. They need to make sure
that their products and experience have enough differentiations from the basic product. If
consumers are satisfied with a basic product and dont think that differentiations are worth
the price premium they may switch to a company that follows a low-cost provider strategy.
Continue with the hub strategy of international expansion: Slowing down on
international is a good plan, they should wait to aggressively expand internationally until
their finances have improved significantly. The hub strategy works well in increasing brand
awareness in locations where there is plenty of foot traffic and buzz can be generated that will
spread to the spoke areas where they can then start getting locations. In these spoke areas
they should be careful to not open too many stores, because it will erode sales at the already
established locations. Their focus on licensing stores in international markets will allow them
a larger amount of control over the quality control methods, than if they had franchised.
Partnerships: Continue with their partnerships with companies like PepsiCo, Unilever,
and J im Beam Brands that will allow them to extend their product offerings into new
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consumer markets. These partnerships will allow them to use their brand name for products
that are not directly related to coffee and therefore appeal to more consumers. These
partnerships like the ones with PepsiCo and Unilever are particularly strong, because
Starbucks has been able to extend them beyond their original purpose. For example,
Starbucks and Unilever originally created a partnership to manufacture Starbucks brand ice
cream, but when they acquired Tazo Tea they extended that agreement to manufacture,
market, and distribute Starbucks ready-to-drink Tazo beverages in the United States and
Canada.
Selectively develop new channels of distribution: In the United States Starbucks had a
3 percent share of what is estimated to be a 37 billion cups of coffee served to on-the-go
drinkers, a 4 percent share of the 25 billion cups of coffee served at home, and a 13 percent
share of the 3.7 billion cups served in restaurants and coffeehouses. Internationally these
numbers are even smaller. This clearly shows that they have a lot of growth opportunities not
just internationally, but domestically as well.