Starbucks Corporation
Starbucks purchases, roasts, and brews high-quality whole bean coffees and sells them along with Italian style espresso beverages, a variety of pastries, and coffee-related accessories and equipment - primarily through its company-operated retail stores. In addition to sales through the company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells a bottled Frappuccino(r) coffee drink and a line of premium ice creams through its joint venture partnerships. Finally, Starbucks offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The Company's objective is to establish Starbucks as the most recognized and respected brand in the world.
To achieve this goal, the Company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.
Mission Statement and Corporate Strategy:
The Starbucks Corporation serves to establish the company as the premier purveyor of the finest coffee in the world while maintaining its uncompromising principles while the company grows. Some of the guiding principles that helps Starbucks make any appropriate decisions are; providing a great work environment and treating all with respect and dignity, embracing diversity as an essential component in their business style, applying the highest standards of excellence to the purchasing, roasting, and selling of their products, developing enthusiastic and satisfied customers, contributing positively to communities and the environment, and recognizing that profitability is essential to future success.
Supply Chain Management Strategy:
Starbucks depends upon both its outside brokers and its direct contact with exporters for the supply of green coffee. Coffee is the world's second largest traded commodity and its supply and price are subject to instability. Coffee of the quality sought by Starbucks tends to trade on a negotiated basis substantially higher than commodity coffee pricing. Supply and price can be affected my multiple factors in the producing countries, including weather, political, and economic conditions.
To lessen the risks associated with the increases in coffee prices and to allow greater predictability in the prices the Company pays for its coffees over extended periods, the Company enters into fixed price purchase commitments in order to secure an adequate supply of quality green coffee and fix a cost for future periods. Starbucks believes that, based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote.
Specialty foods, such as pastries, are generally purchased from local sources based on quality and price. Items bearing the ...
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To lessen the risks associated with the increases in coffee prices and to allow greater predictability in the prices the Company pays for its coffees over extended periods, the Company enters into fixed price purchase commitments in order to secure an adequate supply of quality green coffee and fix a cost for future periods. Starbucks believes that, based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote.
Specialty foods, such as pastries, are generally purchased from local sources based on quality and price. Items bearing the Company's logos and trademarks are purchased under contract. Hardware items, such as coffee makers, are generally purchased directly from manufacturers.
As of late January 2002, Blue Martini will now be providing its supply-chain optimization software to global coffee manufacturing giant Starbucks. Starbucks product orders can be processed from the Web, EDI (electronic data interchange), and message-based integration. Once received, the orders will be routed by the Blue Martini application system to the appropriate back-end system. The catalog and account management applications will then allow Starbucks to manage those functions centrally and deliver contract-based products and pricing in multiple languages to its international distribution retailers and partners.
Total Quality Management: Building the Starbucks Brand
So far, Starbucks had spent very little money on advertising, preferring instead to build the brand cup by cup with customers and depend on word-of-mouth and the appeal of its storefronts. The company was, however, engaged in a growing effort to extend the Starbucks brand and penetrate new markets. In addition to expanding internationally, venturing into ice cream with Dreyer's and into Frappuccino with Pepsi, partnering with licensees, and developing specialty and mail-order sales, Starbucks had recently begun selling its coffees in supermarkets.
Supermarket sales were test-marketed in over 500 stores. Management believed that the tests confirmed the appeal of offering Starbucks coffee to existing customers in convenient supermarket locations while at the same time introducing new customers to its products. Two-thirds of all coffee was sold in supermarkets. Starbucks' supermarket sales effort needed to be developed. The company started rolling out supermarket sales of its coffees in 10 major metropolitan. Starbucks coffee sold in supermarkets featured distinctive, elegant packaging; prominent positions in grocery aisles; and the same premium quality as that sold in its own stores. Product freshness was guaranteed by Starbucks' FlavorLock packaging, and the price per pound paralleled the prices in Starbucks' retail stores.
The company was also said to be testing "light roast" coffee blends for those customers who found its current offerings too strong. Also, Starbucks quietly test-marketed four 20 percent fruit-juice beverages in one market. The single-serve bottled drinks were priced around $2, and at least one contained caffeine. Also on the new-product front was an apple cider made exclusively for Starbucks by Nantucket Nectars. Plus, the company was selling chocolate bars and other candy, and had plans to bring candy production in-house if sales went well enough.
One article on TQM expressed the following statements about Starbucks; "Starbucks' constant evolution ... new alternatives, refined merchandising, improved equipment. However, their fundamentals remain -- 1) a passion for coffee and 2) a dedication to line employees. In Interbrand's 2001 brand value rankings, Business Week notes that "Starbucks showed the biggest jump in brand value as it kept expanding its coffee empire into every nook and cranny."
As Howard Schultz, Starbucks' chairman and CEO notes, "It's an ironic fact that, while retail and restaurant businesses live or die on customer service, their employees have amongst the lowest pay and worst benefits of any industry. From the beginning, I wanted to be the employer of choice, the company everybody wanted to work for. By paying more than the going wage ... and offering benefits that weren't available elsewhere, I hoped that Starbucks would attract people who were well educated and eager to communicate our passion for coffee.
The Future of Starbucks:
Industry analysts in 1998 saw Starbucks as being well on its way to becoming the Nike or Coca-Cola of the specialty coffee segment. It was the only company with anything close to national market coverage. The company's most immediate objective was to have 2,000 stores in operation by the year 2000. Its longer range objective was to become the most recognized and respected brand of coffee in the world. The company's efforts to greatly increase its sphere of strategic interest via its joint ventures with Pepsi and Dreyer's, its move to sell coffee in supermarkets, and the possibility of marketing fruit-juice drinks and candy under the Starbucks label represented an ongoing drive on the CEO's part to continually reinvent the way Starbucks did business. Suggestions to improving profitability are: becoming innovative with different types of both hot and cold specialty drinks, expand on their desserts and delicacies, implementing a drive thru for those customers who are pressed for time, creating a more comfortable atmosphere or expanding the size of its store locations, and increasing there current coffee flavor menu.
In order to sustain the company's growth and make Starbucks a strong global brand, the CEO believes that the company had to challenge the status quo, be innovative, take risks, and alter its vision of who it was, what it did, and where it was headed. Under his guidance, management was posing a number of fundamental strategic questions: What could Starbucks do to make its stores an even more elegant "third place" that welcomed, rewarded, and surprised customers? What new products and new experiences could the company provide that would uniquely belong to or be associated with Starbucks? What could coffee be-besides being hot or liquid? How could Starbucks reach people who were not coffee drinkers? What strategic paths should Starbucks pursue to achieve its objective of becoming the most recognized and respected brand of coffee in the world?
Starbucks Financials:
Starbucks has recently released its annual fiscal results for 2003, which had set the company's record for earnings and revenues. For the 13 weeks ended September 28, 2003, consolidated net revenues increased 25 percent to $1.1 billion from $865 million for the same period in fiscal 2002. Net earnings for the 13-week period ended September 28, 2003 increased 21 percent to $69.6 million from $57.7 million for the same period in fiscal 2002. Diluted earnings per share were $0.17 for the 13-week period ended September 28, 2003, compared to $0.14 for the comparable period in fiscal 2002.
For the 52 weeks ended September 28, 2003, consolidated net revenues increased 24 percent to $4.1 billion from $3.3 billion for the same period in fiscal 2002. Net earnings for the 52-week period ended September 28, 2003 increased 26 percent to $268.3 million from $212.7 million for the same period in fiscal 2002. Diluted earnings per share were $0.67 for the 52-week period ended September 28, 2003, compared to $0.54 per share for the comparable period in fiscal 2002.
According to the chart above, Starbucks has steadily increased its revenue over a 5 year period. For each period of one year, Starbucks has randomness present in its graph; however, with the results of the last two years, Starbucks seems to be becoming a dominant Coffee company and will most likely experience an overall increase over the next few years. From its beginning as a public company, the company has seen a steady upward trend, with periodic drops in its graph.
