A historical perspective of Starbucks revealed that the company began in 1971 with three individuals having like passion for fine coffees and exotic teas. English teacher Jerry Baldwin, History teacher Zev Siegel, and writer Gordon Bowker collectively combined their thoughts and resources and opened a store called Starbucks Coffee, Tea, and Spice in a marketplace in Seattle. They selected the name Starbucks in honor of Starbuck, a character in Herman Melville’s book, “Moby Dick”. A two-tailed mermaid, encircled by the words Starbucks, is used as the company’s logo.
The company grew from 17 coffee shops in Seattle to over 16,000 outlets in 50 countries. It is reported that their sales escalated at a rate of 20 percent annually, peaking at approximately $10. 4 billion in 2008. With a swift rise to success came a swift downfall in 2009 as the Company experienced an unprecedented decline in sales of $9. 8 billion. Their profits surged further at an average rate of 30 percent per year through 2007 peaking at $673, and then plummeted to $582 billion and $494 billion in 2008 and 2009, respectively.
To reduce cost, the company closed 475 stores in the United States. During 2010 the company once again realized revenue increases up to a record total of $10. 7 billion. The company reported that operating income increased by $857 million in comparison to 2009’s $1. 4 billion. The full-year operating margin of 13. 3 percent represented the highest full-year consolidated operating margin in the company’s history. With this once again upward trend in profitability, one has to wonder if Starbucks have found the answer to its sales strategy.
The volatility of its sales have somehow haunted the financial stability of this company in the past, and it seems that only time will reveal whether this fluctuating tendency will become a fixation of the past. Amidst the great expansion and success, Starbucks has encountered numerous problems, both in its domestic markets, as well as its global markets. A greater portion of its achievements have been through the Baby boomers in the 90s’. As the population shift, the emergence of a younger and savvier generation – generation X, did not appreciate the Starbucks brand or its experience.
The aura at its local shops did not align with that generation’s definition of socializing and comfort, but rather the contrary – they did not feel welcome and the products were pricey, In addition to not attracting the emerging generation, Starbucks’ employees were extremely disgruntled and often times felt overworked and underappreciated. Ironically, the company’s aggressive marketing strategy gave them market dominance, but on the other hand, their aggressive strategy and mean spirited attitude caused their sales to decrease and they not only lost customers, but employees as well.
With this stigma, the company could not maintain its 20% growth in the domestic markets and thus they turned their attention to global territories. The largest Starbucks was in Japan, with 368 shops. By the end of 2001 they started operations in the Middle East and during that same year sales in Japan began to plummet. Question No. 1 Identify the Controllable and Uncontrollable elements that Starbucks has encountered in entering the global markets. Controllable and Uncontrollable elements are situations or conditions that can influence the environment wherein the marketer plans to operate.
The controllable elements Starbucks encountered while entering the global markets surrounded its market mix – product, price, place and promotion. The Starbucks brand is a well known both domestically and globally. The company has the ability to manipulate its product to fit any markets tastes and expectation. Pricing for Starbucks can be controlled based on its research findings with the competition in its targeted markets. From its annual report, it is clear that Starbucks has built great partnership in the international markets and are able to foster even greater and better brand loyalist within its global markets.
The Uncontrollable elements vary from country to country. In Japan, Starbucks had to deal with the existing competition among rival shops in that country. They also had to face any economical recession facing the Japanese and make decisions based on the government’s sanctions and regulations. In France, the generosity of the labor force and the political and legal temperature were the uncontrollable obstacles facing Starbucks. In Italy however, their product mix was an area that Starbuck struggled with.
The Italian’s included food items with their coffee and thus had a competitive edge over Starbucks. Starbucks, a solo product would have to adjust its product to withstand the competition in Italy. In Vienna, culture was the uncontrollable element Starbucks had to encounter. It seemed that the youth in Vienna were attracted to new things and thus, it opened up the market for Starbucks. Question #2 What are the major sources of risk facing the Company? Discuss potential solutions.
Three major sources of risk facing Starbuck can be identified as follows: 1. Market Saturation in its domestic markets. 2. Losing present and future customers (Generation X not captured) 3. SRC and Ethnocentrism global markets. Potential solutions: Starbucks needs to design a Strategic plan focusing on more international and global marketing relationships. This would reduce market saturation allowing management to have some more time to focus on improving the employee relationships, and thus providing for more satisfied employees and less employee turnovers.
As the company pursue global markets, they should also conscious of SRC and Ethnocentrism in the decision making process an effort to eliminate cultural conflicts. In addition, Starbucks should realign their product to attract the younger generation by revising their pricing strategies. Since coffee is their sole product, the company may want to pursue other items that can make a great combination fit in the food industry. The introduction of WI-FI services should attract Generation X.