Starbucks: The Biggest Coffee Retailer Corporation
This case write-up analyzes one of the biggest coffee retailer corporations, Starbucks. Starbucks entered the market 48 years ago, to become today a 24.72-billion-dollar giant. Throughout its journey, Starbucks has encountered many difficulties in different countries, especially when it came to adapting with differences in cultures, but this didn’t stop Starbucks from growing. Nowadays, the chain is located in more than 78 countries, across six continents. This case write-up will give brief background information and will analyze some key questions regarding Starbucks.
In 1971, three college friends from the University of San Francisco, Jerry Baldwin, Zev Siegl and Gordon Bowker, decided to open a coffee shop in Seattle, Washington. One of the partners, Gordon Bowker, was a fan of the book Moby Dick and he named the company after the chief mate character “Starbuck”. Initially, they started selling roasted coffee beans because at that time cafes that served espresso and cappuccino weren’t prevalent.
In 1982, another key member joined them, Howard Schultz as the head of marketing, whom helped the company expand and become what it is today. Schultz’s idea of opening cafes, and serving espressos came after his trip in Italy. He was impressed by their coffee culture and he came up with the idea of doing the same thing with Starbucks in the U.S. He convinced the founders to test the coffee house concept in downtown Seattle, where for the first time they served Starbucks Coffee Late. After his successful experiment, in 1987, Schultz purchased Starbucks.
Today, Starbucks Coffee Company is the largest coffee chain in the world, with more than 29,324 company-owned and licensed stores in 78 different countries located in 6 continents. The United States has the largest number of locations, more than 14,606. The textbook analyzes Starbucks in the European market and China in more detail, considering that in these two particular locations, Starbucks went through many obstacles. The 2nd largest market where Starbucks is growing rapidly is China, with more than 3,521 stores.
The purpose of this paper
The purpose of this case write-up is to analyze Starbucks’ global market-entry strategy. As one of the most well-known coffee companies, which operates in more than 78 countries around the world, Starbucks’ marketing strategies are worthy to explore. We will analyze these strategies by answering some key questions about this case. The answers are based on the information provided on the textbook and on facts collected from online publications.
- What is the story of Starbucks? How large is it now? In which countries does it operate? How many of its stores are company-owned and how many are franchises?
- What is the Starbucks experience? How does the company define a Starbucks experience?
- What are some advantages and disadvantages of European markets for Starbucks? Which markets show potential for growth in Europe?
- What are some advantages and disadvantages of the Chinese market for Starbucks?
- Why did Mr. Schultz send a memo to the executives indicating, the commodization of the Starbucks Experience“? What was the threat pointed by this memo?
- What solutions did Starbucks seek for alleviating the effects of the threat mentioned in the memo? What strategies and tactics has the company used to carry the company to the future?
For many years, Starbucks has been growing its network only through licensed partnerships. This strategy was used by Howard Schultz to have as much control as possible over its stores because he considered franchises as the middleman between him and the customers. But nowadays, Starbucks has begun franchising “within certain international markets”, starting with the European market. Also, Seattle’s Best Coffee does franchise its operations and it has over 540 cafes in the U.S., approximately 100 expresso bars in 20 states and provinces, including the District of Columbia.
Customer satisfaction was another strategy used by Starbucks; employees are trained to make sure that each costumer remains satisfied from the service. It’s called the “Starbucks Experience” because it reflects the company’s mission to “inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time”. Customer service is a priority and employees are trained to make a personalized costumer experience; a good example would be the personalization by writing each clients names on the products ordered. The success of this company lies in the ability to gain costumers loyalty, increase business expansion, generate revenues, and motivate employees – all at the same time.
On the other hand, Starbucks has had many difficulties in different countries. During the financial crisis in 2008, due to the economic down-turn customers couldn’t afford lots of non – essential products. This premium brand products was too expensive for people at that time, and due to the decrease in sales Starbucks closed 900 stores and cut off 6700 employees. The European market, especially in France, has resulted a real challenge for Starbucks. The adjusting part of beverages to their coffee culture was the challenging part considering that European citizens were already familiar with café and the competition in this market was high, especially from cheap coffee sellers. Mostly in Europe, people prefer to sit while they consume café with their family and friends, so Starbucks had to invest enormous amounts of money to create some additional space for their clientele to sit.
Apart from the cons, the European market has some pros for Starbucks too. Europe in general has the highest amount of coffee consumed per individual in a year. High coffee consumption, high living standards and wages created a good environment for Starbucks to grow. These stores are usually full of people who appreciate the American café culture, tourists, or students. Despite all these facts, Starbucks has lots of potential to grow in Europe especially in the United Kingdom with more than 600 locations, Germany, with more than 200 locations, and the Netherlands and France.
In addition, the second-largest market in which Starbucks is growing the fastest as of today happens to be China. The first Starbucks store in China opened in 1999 in the World Trade Building, Beijing. Now the franchise counts more than 3600 locations in 150 cities, and collaborates with more than 50,000 local firms. The Chinese clientele doesn’t have a historical coffee culture likeness but when they do go to a store; they prefer to go for coffee to have a place where to sit and spend time with their friend, usually in the afternoons. Unlike their American counterparts, whom show a different behavior; by usually going through order carry – outs rather than sitting in the store. This and others, were major reason why China initially was a challenge for Starbucks, considering as well that the Chinese society preferred more tea than café, so competition with Chinese teahouses and Real brewed tea was high. To adopt with their culture and to strengthen its tea offering, Starbucks acquired two tea brands, Tazo and Teavana, which offer brewed tea, packed tea, etc.
In more than 48 years, Starbucks has been growing rapidly in numbers, without focusing on its brand experience. For Mr. Schultz it’s not just about a coffee, its more about the exclusivity and uniqueness of these products, that’s what can attract people when they make over the budget purchases. In 2008, just before the crisis, he sent a memo to all senior executives, expressing his concerns about the “brand experience”, because to him it was very important to stay focus on their company’s mission. Technology, was the strategy used to maintain brand image. The company was able to communicate directly through social media such as “My Starbuck Idea web”, where any costumer could give their feedback. Another key area Starbucks expanded was through diversification of its products, focusing more on exclusive upscale segment of coffee aficionados, “Starbucks Reserved Roastery”. All this was achieved by investing heavily on advertisement through social media to prove that “it’s not just a coffee, its Starbucks”.
To conclude all this information provided in this case write-up analyzes Starbucks’ global marketing strategies used to grow its network around the world. As a conclusion, we can state that Starbucks is having some difficulties during its adaptation process and also is focusing more on increasing numbers than maintaining its company’s core values. Especially in Europe, the competition is high from local cafes which provide good quality coffee with lower prices. Differences in coffee habits from Americans who prefer carry – outs and Europeans who love to sit when they sip, affected Starbucks’ brand image in Europe. Another fact is that even in China the competition is increasing day by day. On the other hand, the company experiences show that the company should focus on its strategy to maintain and improve its service. The key success of Starbucks, are its customers and the ability to attract them and maintaining their loyalty toward the brand. This was achieved through many innovations, such as free wi-fi or free music apps, that this company provided to its customers to make them feel part of the Starbucks family. One thing is certain, the Starbucks experience is unique and this will be the greatest challenge for the company in the future in continuing to keep it.