After going public in 1992, Starbucks’ strong balance sheet and double-digit growth made it a hot growth stock. The Starbucks vision was coffee culture as community, the Third Place between work and home where friends share the experience and exotic language of gourmet coffee. Its growth was fueled by rapid expansion in the number of stores both in the United States and in foreign markets, the addition of drive-though service, its own music label that promoted and sold CDs in stores and other add-on sales including pastries and sandwiches. In an amazingly short time, Starbucks became a wildly successful global brand. But in 2007, Starbucks’ performance slipped; the company reported its first-ever decline in customer visits to U.S. stores, which led to a 50 per cent drop in its share price. In January 2008, the board ousted CEO Jim Donald and brought back Howard Schultz — Starbucks’ visionary leader and CEO from 1987 to 2000 and current chairman and chief global strategist — to re-take the helm.
Starbucks’ growth strategies have been widely reported and analyzed, but rarely with an eye to their impact on the brand. This case offers a compelling example of how “non-brand” managerial decisions — such as store locations, licensing arrangements and drive-through service — can make sense on financial criteria at one point in time, yet erode brand positioning and equity in the longer term. Examining the growth decisions made in the United States provides a rich context in which to examine both the promise and drawback of further foreign expansion.
1. When Howard Schultz launched Starbucks, who was the target market, how was Starbucks positioned and what decisions about product, price, distribution and promotion supported this positioning?
2. Wall Street and Starbucks management placed great emphasis on the company’s ability to continue its impressive growth rate. What were some of the growth initiatives undertaken by Starbucks and how did they fuel company growth?
3. It’s clear that, in general, the company’s growth initiatives were sound in terms of generating the growth expected by Wall Street. But which of Starbucks’ initiatives, in retrospect, were sound decisions for the brand and which were inconsistent with brand positioning?
4. What role should foreign expansion play in Starbucks’ strategy?
5. How should Starbucks define its target market and positioning after its decline in 2007?
6. Evaluate the actions taken to reinvigorate Starbucks.