CASE STUDY - STARBUCKS

EXECUTIVE POST GRADUATE PROGRAMME IN MANAGEMENT (NMP-25) ENERGY MANAGEMENT (EM-12) GROUP 09 ANUJ GUPTA KRITAGYA VAIRAGI PAWAN PUROHIT SMITHA HS SHYAM KUMAR SHARMA NIKHIL BHATT :25NMP09 :25NMP20 :25NMP31 :25NMP42 :25NMP53 :12EM09

COFFEE INDUSTRY AN OVERVIEW

Coffee is second most traded commodity next to oil Divided into two categories Basic and Specialty Coffee companies do not directly deal with suppliers Specialty coffee industry is on the rise Basic coffee industry is on a decline Speciality coffee consumptions is 31% of the total coffee consumption

STARBUCKS - COMPANY
Market Leader in USA Coffee Industry Over 1000 retail locations in 32 markets Over 20000 dedicated partners (employees) Guiding Principles: Develop satisfied customers Apply the highest standards of excellence to the purchasing , roasting and fresh delivery of coffee Embrace diversity as an essential component of the business way Recognise the profitability is essential to future success
*Data provided is as per Companys 1996 annual report

STARBUCKS SWOT ANALYSIS

STRENGTHS Established brand image Good relationship with Supplier Widespread Consistent Strong Financial Foundation Valued and motivated employees, good work environment Market Leader OPPORTUNITIES Technological advances Brand Extension Continued domination of segment New products WEAKNESSES Self Cannibalization Product Pricing

THREATS Fragile state of worldwide production of speciality coffee Cultural and Political issues in foreign countries Other substitute products such as softdrinks, alcoholic beverages

COMPETITION
Market Cap ($mm) as on March 25th, 1997
225.6
440.2 Starbucks Others 100.6 Cara Van Houtte Second Cup 2438.5 137.2

Starbucks is the main coffee player in the United States with no comparable competitor

PORTERS FIVE FORCES CONTINUED..

BARGAINING POWER OF SUPPLIERS (HIGH) Starbucks does not produce any coffee of their own and is completely dependent on suppliers Considering Starbucks rapid growth plan, its difficult for them to find suppliers as per their standard. This will increase the bargaining power of existing suppliers THREAT OF SUBSTITUTES (HIGH) There are many substitutes available such as Tea, Soft drinks, Alcoholic beverages etc Higher version of basic coffee, flavored coffee

EXISTING RIVALRY (MEDIUM) Around 3485 competitors exists Competitors such as Second Cup, Caribou, Coffee People etc exists but none has brand image comparable to that of Starbucks

BARGAINING POWER OF CONSUMER (LOW) There is no comparable competitor for consumers to move away from Starbucks The coffee consumption is on rise whereas for other beverages its declining Consumers do not shift back to low quality after specialty coffee

THREAT OF NEW ENTRANTS (MEDIUM) Although, entry & exit barriers are easy, the brand is so established that there is no immediate threat Some market share may be lost, regionally, to new entrants

WAY FORWARD
Concentrate on its core competence:
Continue providing a wholesome environment to its consumers in its retail outlets Speciality Coffee Employee Satisfaction and training

Do not serve coffee in food chains like McDonalds that may not provide the Starbucks experience and dilute its brand
Start offering its franchise in established markets Use its national brand image and penetrate regional markets by advertising extensively

WAY FORWARD - CONTINUED.

Innovate as per the market(according to taste of local people) and bring new products It should move forward towards high potential areas like bottled beverages Starbucks is not a successful low cost competitor ,so it should try to reduce its cost

In new international markets, it should start with a joint venture with some established business house