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1 STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003. 2 STARBUCKS VIDEO An Interview with Howard Schultz, Founder, Chairman & Chief Global Strategist.

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Presentation on theme: "1 STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003. 2 STARBUCKS VIDEO An Interview with Howard Schultz, Founder, Chairman & Chief Global Strategist."— Presentation transcript:

1 1 STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003

2 2 STARBUCKS VIDEO An Interview with Howard Schultz, Founder, Chairman & Chief Global Strategist

3 3 WHAT IS STARBUCKS STRATEGY WHAT IS STARBUCKS STRATEGY For Howard Schultz For Management and Employees For Shareholders For Customers For Suppliers and Partners

4 4 STARBUCKS CURRENT STRATEGY Continue the focus on growth Continue the focus on growth Establish a leadership positions with company owned stores in key markets- USA, Japan, Australia, UK Establish a leadership positions with company owned stores in key markets- USA, Japan, Australia, UK Pre-emptively enter and aggressively grow in all targeted markets Pre-emptively enter and aggressively grow in all targeted markets Leverage the brand into new product categories and channels Leverage the brand into new product categories and channels Continue operations improvement Continue operations improvement Growth through innovation Growth through innovation Develop and maintain leadership talent Develop and maintain leadership talent Maintain our values, culture and guiding principles Maintain our values, culture and guiding principles

5 5 Creating and Building a Brand Identify elements Identify elements Target consumers Target consumers Target needs (what do your consumers need?) Target needs (what do your consumers need?) Target value proposition (why your product?) Target value proposition (why your product?) Target message Target message Mix, media, spend… Mix, media, spend… Make sure all the elements are aligned Make sure all the elements are aligned

6 6 Aligning the Marketing Value Chain Who are they?  Psychographically  Demographically  Geographically What are their current needs?  Personal needs and usage occasions Why Buy (Brand)? (Essence of the brand)  Product line 1  Product line 2… How do we communicate the “why”?  For the brand?  By product line? Target Needs Target Message Target Value Target Consumer How aligned is your brand?

7 7 Starbucks as a Brand

8 8 U.S. Coffee Market Size

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38 38 STARBUCKS CASE ANALYSIS What has made Starbucks successful? What has made Starbucks successful? What business is Starbucks in? What business is Starbucks in? When consumers buy Starbucks coffee what are they buying? When consumers buy Starbucks coffee what are they buying? What are Starbucks core competencies and key strategic assets? What are Starbucks core competencies and key strategic assets? Which growth strategy should Starbucks choose? Why? Which growth strategy should Starbucks choose? Why? How would you implement the strategy you choose & what are implications for the Starbucks economic model? How would you implement the strategy you choose & what are implications for the Starbucks economic model?

39 39 MARKETS PRODUCTSPRODUCTS Existing New Existing New New Product Innovation STRATEGIES TO GROW SALES Market Penetration Market Expansion Diversification

40 40 MARKETS PRODUCTSPRODUCTS Existing New Existing New New Product Innovation Frappuccino Tiazzi Tazo teas STARBUCKS STRATEGIES Market Penetration Expand In US Add drive thru Expand seating Market Expansion Barnes & Noble Airports & airlines Aramark Diversification Ice cream Bottled Frappuccino

41 41 Growth Opportunities & Value Chain Domestic Retail International Retail Grocery Expansion Sales Partners On-Line Mail Order New Ventures Sourcing Roasting Distribution Sales Consumers & Blending Skilled buyers Forward contracts Company plants -Kent, WA -Wilksbor, PA Regional DCs Direct delivery (DSD) 2-3x retail units (potential 5,500 per Specialty Coffee Assoc) Advertising Stored value card 2x cups per day 2x penetration Regional plants Joint venture Licenses UK, Japan USA Ice cream Botttled drinks Coffee (beans/ground) Foodservice Business Alliances -Airports -Hotels, restaurants Kraft license Dreyer’s JV Pepsi JV Host Marriott CatalogInternet TeaMusicGames

42 42 STRATEGIC ISSUES Declining corporate growth rate Declining corporate growth rate Average ROA, ROE and ROCE Average ROA, ROE and ROCE Morning day part focus Morning day part focus Growing importance of Frappuccino drinks Growing importance of Frappuccino drinks Question on ability to implement diversification -Acquisition s Question on ability to implement diversification -Acquisition s - Internet /Wireless - Internet /Wireless -Grocery Ventures -Grocery Ventures Enormous hiring and training needs Enormous hiring and training needs Licensing Licensing -International -International -US Business alliances -US Business alliances Metrics and role of Starbucks Card Metrics and role of Starbucks Card

43 43 GROWTH INTITIATIVES Current: US Retail Expansion US Retail Expansion International Expansion International Expansion Business Alliances: supermarkets, retailers, foodservice, grocery products Business Alliances: supermarkets, retailers, foodservice, grocery products New Ventures: Tazo, Hear Music, Value Card New Ventures: Tazo, Hear Music, Value CardOpportunities: New Products New Products New Distribution Channels: vending, kiosks, foodservice New Distribution Channels: vending, kiosks, foodservice New Markets New Markets Acquisitions Acquisitions

44 44 ANALYSIS GRID Domestic Retail International Retail Grocery Channel Business Alliances Online and Catalog New Products People Leadership Human Resources Hiring needs Conflict Resolution Change Management Marketing Brand Equity Hear Music Tazo Teas Competitive Position Grocery kiosks Target markets Small towns Virgin Records Consumer Values Value cards

45 45 ANALYSIS GRID Domestic Retail International Retail Grocery Channel Business Alliances Online and Catalog New Products Economics Financing Negative cash flow Profit Potential LicensingCalculate? Activity Based Costing Operations Sourcing Fair trade Organics Manufacturing Third plant European plant Asian plant? Negotiation Supply Chain DSD?

46 46 HOW FAST SHOULD INTERNATIONAL EXPAND

47 47 SHOULD THERE BE MORE NEW PRODUCTS EMPHASIS

48 48 ANTICIPATE WHERE THE PUCK WILL BE….. FROST & PARTNERS

49 49 STARBUCKS PERFORMANCE $8 billion Market Capitalization $8 billion Market Capitalization 20+% annual sales growth rate 20+% annual sales growth rate 11 years of 5+% comparable store sales revenue growth 11 years of 5+% comparable store sales revenue growth 6,193 stores in 30 countries 6,193 stores in 30 countries One of the top 9 companies to work for in the USA One of the top 9 companies to work for in the USA More than 10x as many retail stores as its nearest competitor More than 10x as many retail stores as its nearest competitor Market leader in gourmet coffee retailing and in supermarkets Market leader in gourmet coffee retailing and in supermarkets 20+% CAGR Share Prices 20+% CAGR Share Prices Source: Hoovers SBUX Share Price Since IPO

50 50 STARBUCKS REVENUES GROWTH $Millions $975 $1,308 $1,688 $2,178 $2,649 $3,289

51 51 RETAIL STORE GROWTH Licensed Locations Company -Owned Locations Number of stores 1,402 1,886 2,498 3,501 4,709 5,886 7,086

52 52 5%-9% COMPARABLE STORE SALES GROWTH 6% 9% 6% 5%

53 53 OPERATING MARGINS 8.8% 8.3% 9.3% 9.7% 10.6% 9.7%* * Excludes one-time items.

54 54 NET EARNINGS GROWTH $ Millions $55 $68* $101.6 $94.5* $181.2 $215 * Excludes one-time items.

55 55 Earnings Per Share $.66 $.75* $.27 $.24* $.46 $.54* * Excludes one-time items.

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