-39-apps-viewer.googleusercontent.com/viewer/secure/pdf/SvtqvoOcne603060ifuf100ak 1t6u211/3817d9c9c1rbro ljrclmm42818teha/1578504000000/drive. CASE 1-1 Starbucks-Going Global Fast The Starbucks coffee shop on Sixth Avenue and Pine Street in downtown Seattle sits serene and orderly, as unremarkable as any other in the chain bought years ago by entrepreneur Howard Schultz. A few years ago, however, the quiet storefront made front pages around the world. During the Wodd Trade Organization talks in November 1999. protesters flooded Seattle's streets, and among their targets was Starbucks, a symbol, to them, of free market capi talism run amok, another multinational out to blanket the earth. Amid the crowds of protesters and riot police were black masked anarchists who trashed the store, leaving its windows smashed and its tasteful green and white decor smelling of tear gas instead of espresso Says an angry Schultz: "It's hurtful. I think people are ill-informed. It's very difficult to protest against a can of Coke, a bottle of Pepsi, or a can of Folgers. Starbucks is both this ubiqul tous brand and a place where you can go and break a window. You can't break a can of Coke." The store was quickly repaired, and the protesters scattered to other cities. Yet, cup by cup. Starbucks really is caffeinating the world. its green-and-white emblem beckoning to consumers on three continents. In 1999. Starbucks Corp. had 281 stores abroad Today, it has about 7.000-and it's still in the early stages of a plan to colonize the globe. If the protesters were wrong in their acties, they weren't wrong about Starbucks' ambitions. They were just early. The story of how Schultz & Co transformed a pedestrian com modity into an upscale consumer accessory has a fairy tale quality. Starbucks grew from 17 coffee shops in Seattle to over 19.000 outlets in 58 countries. Sales have climbed an average of 20 percent an ally since the company went public, peaking at $10.4 billion in 2008 before falling to $9.8 billion in 2009. Profits bounded ahead an aver age of 30 percent per year through 2007, peaking at $673 million then dropping to $582 million and $494 million in 2005 and 2009. respectively. The firm closed 475 stores in the US in 2009 to reduce costs. But more recently. 2017 revenues rebounded to $22.4 billion profils with an operating profit of $4.1 billion Still the Starbucks name and image connect with millions of consumers around the globe. Up until recently it was one of the fastest growing brands in annual Busines s of the top 100 global brands. Os Wall Street, Starbucks was one of the last great rowth stories. Its stock, including four split scared more Indeed, the crowding of so many stores so close together has become a national joke, eliciting quips such as this headline in The Omlon, a satirical publication: "A New Starbucks Opens in Restroom of Existing Starbucks. And even the company admits that while its practice of blanketing an area with stores helps achieve market dominance, it can cut sales at existing outlets. We probably self cannibalize our stores at a rate of 30 percent a year, Schultz says. Adds Lehman Brothers Inc analyst Mitchell Speiser: "Starbucks is at a defining point in its growth. It's reaching a level that makes it harder and harder to grow, just due to the law of large numbers." To duplicate the staggering returns of its first decades, Starbucks has no choice but to export its concept aggressively. Indeed, some analysts gave Starbucks only two years at most before it saturates the US market. The chain now operates more than 7.000 international outlets, from Beijing to Bristol. That leaves plenty of room to grow Most of its planned new stores will be built overseas representing a 35 percent increase in its foreign base. Most recently, the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and even in faroff Jakarta Athens comes next. And within the next year, Starbucks plans to move into Mexico and Puerto Rico But global expansion poses hupe risks for Starbucks. For one thing it makes less money on each overseas store because most of them are operated with local partners While that makes it easier to start up on foreign turf, it reduces the company's share of the profits to only 20 percent to 50 percent. Moreover, Starbucks must cope with some predictable chal lenges of becoming a mature company in the United States. After riding the wave of successful baby boomers through the 1990s, the company faces an ominously hostile reception from its future con sumers the twenty or thirty-somethings. Not only are the activists among them turned off by the power and image of the well-known brand, but many others also say that Starbucks latte-sipping sophis ticates and pipedin Kenny G music are a real turnoft. They don't feel wanted in a place that sells designer coffee at SJ a cup Even the thirst of loyalists for high price coffee cannot be taken for granted Starbucks growth over the early part of the past decade coincided with a remarkable surge in the economy. Consumer spending tanked in the downtum, and those attes were an easy place for people on a budetected to be sure Starbucks has a lot poing for it as it confronts the chal 1.COM/Viewer/secure/par/svtqvolcneb30bituf 100akit6u211/3817dqc9c1rbrotjrclmn42818tehq/1578504000000/dr than 2,200 percent over a decade, surpassing Walmart, General lenge of regaining its fast and steady growth. Nearly free of debt, it Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total returns fuels expansion with internal cash flow. And Starbucks can maintain In 2006 the stock price peaked at over $40, after which it fell to just a tight grip on its image because most stores are company-owned: $4, and then again rebounded to more than $50 per share. There are no franchisees to get sloppy about running things. By Schultz's team is hard-pressed to grind out new profits in a relying on mystique and word of mouth, whether here or overseas, home market that is quickly becoming saturated. The firm's 12,000 the company saves a bundle on marketing costs. Starbucks spends locations in the United States are mostly in big cities, affluent sub just $30 million annually on advertising, or roughly 1 percent of urbs, and shopping malls. In coffee crazed Seattle, there is a Star revenues, usually just for new flavors of coffee drinks in the summer bucks outlet for every 9,400 people, and the company considers and product launches, such as its new in-store web service. Most that to be the upper limit of coffee shop saturation. In Manhattan's consumer companies its size shell out upwards of $300 million per 24 square miles, Starbucks has 124 cafes, with more on the way. year. Moreover, Starbucks for the first time faces competition from That's one for every 12,000 people-meaning that there could be large U.S. competitors such as McDonald's and its new McCafs. room for even more stores. Given such concentration, it is likely to Schultz remains the heart and soul of the operation. Raised in take annual same-store sales increases of 10 percent or more if the a Brooklyn public housing project, he found his way to Starbucks, company is going to match its historic overall sales growth. That, as a tiny chain of Seattle coffee shops, as a marketing executive in the they might say at Starbucks, is a tall order to fill. early 1980s. The name came about when the original owners looked CS1-2 #12351_case_CS1-1-CS1-20.indd 2 43/19 11:04 AM Cases 1 An Overview CS1-3 to Seattle history for inspiration and chose the moniker of an old mining camp Starbo. Further refinement led to Starbucks, after the first mate in Moby Dick, which they felt evoked the seafaring romance of the early coffee traders Chence the mermaid logo). Schultz pot the idea for the modern Starbucks format while visiting a Milan coffee bar. He bought out his bosses in 1987 and begin expanding The company is still capable of designing and opening a stone in 16 weeks or less and recouping the initial investment in three years a The stores may be cases of tranquility, but magerie sexpansion presentations without looking for connections or tripping over cords. They start with 24 hours of free wireless broadband before choosing from a variety of monthly subscription plans. Starbucks executives hope such innovations will help surmount their toughest challenge in the home market attracting the next gen ration of customers. Younger coffee drinkers already feel uncom fortable in the wores The company ows that because it once had t hentysomething lipud for a market study When their defenses were down came the bad res. They eithet can't -VILW.googleusercontent.com/viewer/secure/pdf/5vtqvocne603060ifuf100ak 1t6u21t/13817dqc9c1rbrotjrdmm42818teha/1578504000000/drive Pero URL BWV GMT UW W Vivace in Seattle's hip Capitol Hill neighborhood, says Starbucks O approached his landlord and offered to pay nearly double the rate Publicis Worldwide) in San Francisco. One of the recurring themes to put a coffee shop in the same building. The landlord stuck with the hypnosis brought out was a sense that people like me aren't welcome here except to serve the yuppies," he says. Then there are Schomer, who says: "It's a little disconcerting to know that some those who just find the whole Starbucks scene a bit pretentious one is willing to pay twice the going rate. Another time, Starbucks Katie Kelleher, 22, a Chicago paralegal, is put off by Starbucks' tal- and Tully's Coffee Corp., a Seattle-based coffee chain, were com i an terminology of grande and vent for coffee sizes. She goes to peting for a space in the city. Starbucks got the lease but vacated the Dunkin' Donuts, saying: "Small, medium, and large is fine for me." premises before the term was up. Still, rather than let Tally's get the As it expands, Starbucks faces another big risk that of becom- space, Starbucks decided to pay the rent on the empty store so its ing a far less special place for its employees. For a company mod- competitor could not move in. Schultz makes no apologies for the eled around enthusiastic service that could have dire consequence hardball tactics. The real estate business in America is a very, very for both image and sales. During its growth spurt of the mid- to tough game," he says. "It's not for the faint of heart." late 1990s, Starbucks had the lowest employee turnover rate of any Still, the company's strategy could backfire. Not only will restaurant or fast-food company, largely thanks to its then unheard- neighborhood activists and local businesses increasingly resent the of policy of giving health insurance and modest stock options to tactics, but also customers could grow annoyed over having fewer part-timers making barely more than minimum wage. choices. Moreover, analysts contend that Starbucks can maintain Such perks are no longer enough to keep all the workers about 15 percent square footage growth in the United States- happy. Starbucks' pay doesn't come close to matching the work equivalent to 550 new stores-for only about two more years. After load it requires, complain some star. Says Carrie Shay, a former that, it will have to depend on overseas growth to maintain an store manager in West Hollywood, California: "If I were making annual 20 percent revenue growth a decent living. I'd still be there. Shay, one of the plaintifis in the Starbucks was hoping to make up much of that growth with suit against the company, says she earned $32,000 a year to run a more sales of food and other noncoffee items but stumbled some store with 10 to 15 part-time employees. She hired employees, man what. In the late 1990s, Schultz thought that offering 58 sand- aped their schedules, and monitored the store's weekly profit-and- wiches, desserts, and CDs in his stores and selling packaged coffee loss statement. But she also was expected to put in significant time in supermarkets would significantly boost sales. The specialty bus behind the counter and had to sign an and ness now accounts for about 16 percent of sales, but growth has up to 20 hours of overtime a week without extra pay-a requirement been less than expected the company has dropped since the settlement. What's more important for the bottom line, though, is that Star For sure, employee discontent is far from the image Starbucks bucks has proven to be highly innovative in the way it sells its main wants to project of relaxed workers cheerfully making cappuccinos. But course: coffee. In 800 locations it has installed automatic espresso perhaps it is inevitable. The business model calls for lots of low-wage machines to speed up service. And several years ago, it began offer workers. And the more people who are hired as Starbucks expands, ing prepaid Starbucks cards, priced from 5 to 5500, which clerks the less they are apt to feel connected to the original mission of high swipe through a reader to deduct a sale. That says the company, cuts e rvice-bantering with customers and treating them like family transaction times in half, Starbucks has sold 570 million of the cards. Robert J. Thompson, a professor of popular culture at Syracuse Uni- When Starbucks launched Starbucks Express, its boldest expert versiy, says of Starbucks is burning out to be one of the great 215 ment yet it blended java, web technology, and faster service. At century American success stories-complete with all the ambiguities. about 60 stores in the Denver area, customers could pre order and Overseas, though, the whole Starbucks package seems new and prepay for beverages and pastries via phone or on the Starbucks lo many young people still very cool. In Vienna where Starbucks Express website. They just make the call or click the mouse belote had a la opening for its first Austrian store. Helmut Spuidich, arrive at the store and their beverage would be waiting with business editor for the paper de Sandal predicted that Star their name printed on the cup. The company decided in 2003 that bucks would attract a younger crowd than would the established thicavation had not succeeded and eliminated the service s Telechouses in Viare nice, but they are pildistan And Starbucks continues to try other fundamental stud bucks is considered hipe ay T o d ote lif Starsount on its outral to Wir welcome "PP YILUSULUMNL.com/viewer/secure/pdt/Svtqvocne603060ifuf100ak 1t6u21t/v3817dqc9c1rbrotjrclmrn42818tehq/1578504000000/ Termame p our the cup The company decor in 2003 har DOCES WOLNE jonger crowd than won the the innovation had not succeeded and eliminated the service. cafes. The coffeehouses in Vienna are nice, but they are old. Star And Starbucks continues to try other fundamental store bucks is considered hip," he says. changes. It announced expansion of a high-speed wireless Internet But if Starbucks can count on its youth appeal to win a welcome in service to about 1,200 Starbucks locations in North America and new markets, such enthusiasm cannot be counted on indefinitely. In Europe. Partners in the project-which Starbucks calls the world's Japan, the company beat even its own bullish expectations, growing to largest W-Fi network-include Mobile International, a wireless sub over 900 stores after opening its first in Tokyo in 1996. AMuent young sidiary of Deutsche Telekom, and Hewlett-Packard. Customers sit Japanese women like Anna Kato, a 22 year old Toyota Motor Corp. in a store and check e-mail, surf the web, or download multimedia w orker, loved the place. "I don't care if it costs more, as long as it tastes cat12354_case_CS1-1-C81-20.indd 3 4/18 11:04 AM CS1-4 Part 6 Supplementary Material sweet," she says. sitting in the world's busiest Starbucks, in Tokyo's Shibuya district. Yet same store sales growth has fallen in Japan, Star bucks' top foreign markel, as rivals offer similar fare. Meanwhile in England. Starbucks' second-biggest overseas market, with over 400 stores, imitators are popping up len and right to steal market share. Entering other big markets may be couple yet The French seem to be ready for Starbucks' sweeter Laste, says Philippe Bloch, cofounder of Columbus Cafe, a Starbucks like chain. But he won ders if the company can profitably cope with France's arcane regu lations and generous labor benefits. And in Italy, the epicenter of European coffee culture, the notion that the locals will abandon their own 200,000 colte bars en masse for Starbucks strikes many as ludicrous. For one. Italian coffee bars prosper by serving food as well as collce, an area where Starbucks still struggles. Also, Italian coffee is cheaper than U.S. ava and say Talian purists, inuch bet fer. American pay about S1,50 for an espresso n orthern Italy, the price in the south jus t sellist that Starbucks c all will come to lay the letter whe a green circle logo that closely resembles that of Starbucks. Conve nience stores also are packed with canned coffee drinks, including Coca-Cola Cos Georgia brand and brews with extra caleine or made with gourmet coffee beans. Schultz declined to speculate on exactly how much cofree Star bucks might sell through Japan's convenience stores. We wouldn't be doing this if it wasn't important both strategically and economi cally," he said The company has no immediate plans to introduce the beverage in the United States, though it has in the past brought home prod ucts launched in Asia. A green tea frappuccino, first launched in Asia was later introduced in the United States and Canada, where company officials say it was well received Starbucks has done well in Japan, although the road hasnt always tie d ot Aer cutting the ribbon on its first apun store in 1996 the company bepaapering stores at a furious pace. New shops c an croads, but the effect more of as the market became r ed. The company returned to pritability and set pois the one in Asted in the delived. cing op oc-Og-3g-apps-viewer.googleusercontent.com/viewer/secure/pdf/SvtqvoDcne603060ifuf100ak 1t6u21t/3817dqc9c1rbrotjrclmr42818tehq/1578504000000/ stions and generous boor benefits. And in Italy, the epicenter in the United States, though it is in the past brought some pros European coffee culture, the notion that the locals will abandon ucts launched in Asia. A green tea frappuccino, first launched in their own 200,000 coffee bars en masse for Starbucks strikes many Asia, was later introduced in the United States and Canada, where as ludicrous. For one, Italian coffee bars prosper by serving food as company officials say it was well received. well as coffee, an area where Starbucks still struggles. Also, Italian Starbucks has done well in Japan, although the road hasn't always coffee is cheaper than U.S. java and, say Italian purists, much bet- been smooth. After cutting the ribbon on its first Japan store in 1996, ter. Americans pay about $1.50 for an espresso. In northern Italy, the company began opening stones at a furious pace. New shops the price is 67 cents in the south, just 55 cents. Schultz insists that attracted large crowds, but the effect wore off as the market became Starbucks eventually will come to Italy. Itll have a lot to prove when saturated. The company returned to profitability, and net profits it does. Carlo Petrini, founder of the antiglobalization movement jumped more than sixfold to 3.6 billion yen in 2007, declined again to Slow Food, snilts that Starbucks substances served in styrofoam" 2.7 billion yen in 2009, and increased again to 6 billion yen by 2013. won't cut it. The cups are paper, of course. But the skepticism is real in Japan, the firm successfully developed a broader menu for its As Starbucks spreads out, Schultz will have to be increasingly stores, including customized products-smaller sandwiches and less sensitive to those cultural challenges. For instance, he flew to Israel sweet desserts. The strategy increased same store sales and overall several years ago to meet with then Foreign Secretary Shimon profits. The firm also has added 175 new stores since 2006, including Peres and other Israeli officials to discuss the Middle East crisis. some drive through service. But McDonald's also has attacked the He won't divulge the nature of his discussions. But subsequently Japanese market with the introduction of its McCafe coffee shops. at a Seattle synapogue, Schultz let the Palestinians have it. With Starbucks opened its first store in Africa in 2016, hoping to tap Starbucks outlets already in Kuwait, Lebanon, Oman, Qatar, and into an expanding consumer class, despite an overall weakness in the Saudi Arabia, he created a mild uproar among Palestinian support economy. It will open up just 12 to 15 stores initially, despite a capac ers. Schultz quickly backpedaled, saying that his words were taken ily on the continent of 150 stores, according to company estimates out of context and asserting that he is pro peace for both sides. In 2018, China was opening a new store every 15 hours, with 3,000 There are plenty more minefields ahead. So far, the Seattle cof planned over the next few years. Shanghai now boasts the largest Star fee company has compiled an envious record of growth. But the fucks store in the world. Startuck is pushing a coffee culture in China giddy buzz of that initial expansion is wearing off. Now, Starbucks where the reward will be healthy, longterm, profitable growth for decades is waking up to the grande challenges faced by any corporation bent to come. CEO Kevin Johnson said. Meanwhile in North America on becoming a global powerhouse. Starbucks is struggling to maintain growth above inflation rates In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business in Japan, beyond cafes QUESTIONS and into convenience stores, with a line of chilled coffee in plas tic cups. The move gives the Seattle-based company a chance to As a guide use Exhibit 1.3 and its description in Chapter I. and do grab a chunk of Japan's S10 billion market for coffee sold in cans. the following bottles, or vending machines rather than made to order at cafes. It 1. Identify the controllable and uncontrollable elements that is a lucrative but fiercely competitive sector. but Starbucks, which Starbucks has encountered in entering global markets. has become a household name since opening its first Japanese store, is betting on the power of its brand to propel sales of the new 2. What are the major sources of risk facing the company! Dis drinks. Also, introducing tea to the menu in 2015 caused a 7 per cuss potential solutions cent increase in sales. Stores in Japun now number close to 1.700. Critique Starbucks overall corporate strategy Starbucks is working with Japanese beverage maker and distribe 4. What advice would you have for Starbucks in Africa in China utor Suntory Lid. The "Discoveries and Doubleshot lines are the company's first foray into the ready to drink market outside is for more information North America, where it sells a line of boilet and come coffee. It also underscores Starbucks' determination to expand its presence S cene Carlisle, and Chester in Asia by catering to local tastes. For instance, the new product Sho M th e -39-apps-viewer.googleusercontent.com/viewer/secure/pdf/SvtqvoOcne603060ifuf100ak 1t6u211/3817d9c9c1rbro ljrclmm42818teha/1578504000000/drive. CASE 1-1 Starbucks-Going Global Fast The Starbucks coffee shop on Sixth Avenue and Pine Street in downtown Seattle sits serene and orderly, as unremarkable as any other in the chain bought years ago by entrepreneur Howard Schultz. A few years ago, however, the quiet storefront made front pages around the world. During the Wodd Trade Organization talks in November 1999. protesters flooded Seattle's streets, and among their targets was Starbucks, a symbol, to them, of free market capi talism run amok, another multinational out to blanket the earth. Amid the crowds of protesters and riot police were black masked anarchists who trashed the store, leaving its windows smashed and its tasteful green and white decor smelling of tear gas instead of espresso Says an angry Schultz: "It's hurtful. I think people are ill-informed. It's very difficult to protest against a can of Coke, a bottle of Pepsi, or a can of Folgers. Starbucks is both this ubiqul tous brand and a place where you can go and break a window. You can't break a can of Coke." The store was quickly repaired, and the protesters scattered to other cities. Yet, cup by cup. Starbucks really is caffeinating the world. its green-and-white emblem beckoning to consumers on three continents. In 1999. Starbucks Corp. had 281 stores abroad Today, it has about 7.000-and it's still in the early stages of a plan to colonize the globe. If the protesters were wrong in their acties, they weren't wrong about Starbucks' ambitions. They were just early. The story of how Schultz & Co transformed a pedestrian com modity into an upscale consumer accessory has a fairy tale quality. Starbucks grew from 17 coffee shops in Seattle to over 19.000 outlets in 58 countries. Sales have climbed an average of 20 percent an ally since the company went public, peaking at $10.4 billion in 2008 before falling to $9.8 billion in 2009. Profits bounded ahead an aver age of 30 percent per year through 2007, peaking at $673 million then dropping to $582 million and $494 million in 2005 and 2009. respectively. The firm closed 475 stores in the US in 2009 to reduce costs. But more recently. 2017 revenues rebounded to $22.4 billion profils with an operating profit of $4.1 billion Still the Starbucks name and image connect with millions of consumers around the globe. Up until recently it was one of the fastest growing brands in annual Busines s of the top 100 global brands. Os Wall Street, Starbucks was one of the last great rowth stories. Its stock, including four split scared more Indeed, the crowding of so many stores so close together has become a national joke, eliciting quips such as this headline in The Omlon, a satirical publication: "A New Starbucks Opens in Restroom of Existing Starbucks. And even the company admits that while its practice of blanketing an area with stores helps achieve market dominance, it can cut sales at existing outlets. We probably self cannibalize our stores at a rate of 30 percent a year, Schultz says. Adds Lehman Brothers Inc analyst Mitchell Speiser: "Starbucks is at a defining point in its growth. It's reaching a level that makes it harder and harder to grow, just due to the law of large numbers." To duplicate the staggering returns of its first decades, Starbucks has no choice but to export its concept aggressively. Indeed, some analysts gave Starbucks only two years at most before it saturates the US market. The chain now operates more than 7.000 international outlets, from Beijing to Bristol. That leaves plenty of room to grow Most of its planned new stores will be built overseas representing a 35 percent increase in its foreign base. Most recently, the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and even in faroff Jakarta Athens comes next. And within the next year, Starbucks plans to move into Mexico and Puerto Rico But global expansion poses hupe risks for Starbucks. For one thing it makes less money on each overseas store because most of them are operated with local partners While that makes it easier to start up on foreign turf, it reduces the company's share of the profits to only 20 percent to 50 percent. Moreover, Starbucks must cope with some predictable chal lenges of becoming a mature company in the United States. After riding the wave of successful baby boomers through the 1990s, the company faces an ominously hostile reception from its future con sumers the twenty or thirty-somethings. Not only are the activists among them turned off by the power and image of the well-known brand, but many others also say that Starbucks latte-sipping sophis ticates and pipedin Kenny G music are a real turnoft. They don't feel wanted in a place that sells designer coffee at SJ a cup Even the thirst of loyalists for high price coffee cannot be taken for granted Starbucks growth over the early part of the past decade coincided with a remarkable surge in the economy. Consumer spending tanked in the downtum, and those attes were an easy place for people on a budetected to be sure Starbucks has a lot poing for it as it confronts the chal 1.COM/Viewer/secure/par/svtqvolcneb30bituf 100akit6u211/3817dqc9c1rbrotjrclmn42818tehq/1578504000000/dr than 2,200 percent over a decade, surpassing Walmart, General lenge of regaining its fast and steady growth. Nearly free of debt, it Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total returns fuels expansion with internal cash flow. And Starbucks can maintain In 2006 the stock price peaked at over $40, after which it fell to just a tight grip on its image because most stores are company-owned: $4, and then again rebounded to more than $50 per share. There are no franchisees to get sloppy about running things. By Schultz's team is hard-pressed to grind out new profits in a relying on mystique and word of mouth, whether here or overseas, home market that is quickly becoming saturated. The firm's 12,000 the company saves a bundle on marketing costs. Starbucks spends locations in the United States are mostly in big cities, affluent sub just $30 million annually on advertising, or roughly 1 percent of urbs, and shopping malls. In coffee crazed Seattle, there is a Star revenues, usually just for new flavors of coffee drinks in the summer bucks outlet for every 9,400 people, and the company considers and product launches, such as its new in-store web service. Most that to be the upper limit of coffee shop saturation. In Manhattan's consumer companies its size shell out upwards of $300 million per 24 square miles, Starbucks has 124 cafes, with more on the way. year. Moreover, Starbucks for the first time faces competition from That's one for every 12,000 people-meaning that there could be large U.S. competitors such as McDonald's and its new McCafs. room for even more stores. Given such concentration, it is likely to Schultz remains the heart and soul of the operation. Raised in take annual same-store sales increases of 10 percent or more if the a Brooklyn public housing project, he found his way to Starbucks, company is going to match its historic overall sales growth. That, as a tiny chain of Seattle coffee shops, as a marketing executive in the they might say at Starbucks, is a tall order to fill. early 1980s. The name came about when the original owners looked CS1-2 #12351_case_CS1-1-CS1-20.indd 2 43/19 11:04 AM Cases 1 An Overview CS1-3 to Seattle history for inspiration and chose the moniker of an old mining camp Starbo. Further refinement led to Starbucks, after the first mate in Moby Dick, which they felt evoked the seafaring romance of the early coffee traders Chence the mermaid logo). Schultz pot the idea for the modern Starbucks format while visiting a Milan coffee bar. He bought out his bosses in 1987 and begin expanding The company is still capable of designing and opening a stone in 16 weeks or less and recouping the initial investment in three years a The stores may be cases of tranquility, but magerie sexpansion presentations without looking for connections or tripping over cords. They start with 24 hours of free wireless broadband before choosing from a variety of monthly subscription plans. Starbucks executives hope such innovations will help surmount their toughest challenge in the home market attracting the next gen ration of customers. Younger coffee drinkers already feel uncom fortable in the wores The company ows that because it once had t hentysomething lipud for a market study When their defenses were down came the bad res. They eithet can't -VILW.googleusercontent.com/viewer/secure/pdf/5vtqvocne603060ifuf100ak 1t6u21t/13817dqc9c1rbrotjrdmm42818teha/1578504000000/drive Pero URL BWV GMT UW W Vivace in Seattle's hip Capitol Hill neighborhood, says Starbucks O approached his landlord and offered to pay nearly double the rate Publicis Worldwide) in San Francisco. One of the recurring themes to put a coffee shop in the same building. The landlord stuck with the hypnosis brought out was a sense that people like me aren't welcome here except to serve the yuppies," he says. Then there are Schomer, who says: "It's a little disconcerting to know that some those who just find the whole Starbucks scene a bit pretentious one is willing to pay twice the going rate. Another time, Starbucks Katie Kelleher, 22, a Chicago paralegal, is put off by Starbucks' tal- and Tully's Coffee Corp., a Seattle-based coffee chain, were com i an terminology of grande and vent for coffee sizes. She goes to peting for a space in the city. Starbucks got the lease but vacated the Dunkin' Donuts, saying: "Small, medium, and large is fine for me." premises before the term was up. Still, rather than let Tally's get the As it expands, Starbucks faces another big risk that of becom- space, Starbucks decided to pay the rent on the empty store so its ing a far less special place for its employees. For a company mod- competitor could not move in. Schultz makes no apologies for the eled around enthusiastic service that could have dire consequence hardball tactics. The real estate business in America is a very, very for both image and sales. During its growth spurt of the mid- to tough game," he says. "It's not for the faint of heart." late 1990s, Starbucks had the lowest employee turnover rate of any Still, the company's strategy could backfire. Not only will restaurant or fast-food company, largely thanks to its then unheard- neighborhood activists and local businesses increasingly resent the of policy of giving health insurance and modest stock options to tactics, but also customers could grow annoyed over having fewer part-timers making barely more than minimum wage. choices. Moreover, analysts contend that Starbucks can maintain Such perks are no longer enough to keep all the workers about 15 percent square footage growth in the United States- happy. Starbucks' pay doesn't come close to matching the work equivalent to 550 new stores-for only about two more years. After load it requires, complain some star. Says Carrie Shay, a former that, it will have to depend on overseas growth to maintain an store manager in West Hollywood, California: "If I were making annual 20 percent revenue growth a decent living. I'd still be there. Shay, one of the plaintifis in the Starbucks was hoping to make up much of that growth with suit against the company, says she earned $32,000 a year to run a more sales of food and other noncoffee items but stumbled some store with 10 to 15 part-time employees. She hired employees, man what. In the late 1990s, Schultz thought that offering 58 sand- aped their schedules, and monitored the store's weekly profit-and- wiches, desserts, and CDs in his stores and selling packaged coffee loss statement. But she also was expected to put in significant time in supermarkets would significantly boost sales. The specialty bus behind the counter and had to sign an and ness now accounts for about 16 percent of sales, but growth has up to 20 hours of overtime a week without extra pay-a requirement been less than expected the company has dropped since the settlement. What's more important for the bottom line, though, is that Star For sure, employee discontent is far from the image Starbucks bucks has proven to be highly innovative in the way it sells its main wants to project of relaxed workers cheerfully making cappuccinos. But course: coffee. In 800 locations it has installed automatic espresso perhaps it is inevitable. The business model calls for lots of low-wage machines to speed up service. And several years ago, it began offer workers. And the more people who are hired as Starbucks expands, ing prepaid Starbucks cards, priced from 5 to 5500, which clerks the less they are apt to feel connected to the original mission of high swipe through a reader to deduct a sale. That says the company, cuts e rvice-bantering with customers and treating them like family transaction times in half, Starbucks has sold 570 million of the cards. Robert J. Thompson, a professor of popular culture at Syracuse Uni- When Starbucks launched Starbucks Express, its boldest expert versiy, says of Starbucks is burning out to be one of the great 215 ment yet it blended java, web technology, and faster service. At century American success stories-complete with all the ambiguities. about 60 stores in the Denver area, customers could pre order and Overseas, though, the whole Starbucks package seems new and prepay for beverages and pastries via phone or on the Starbucks lo many young people still very cool. In Vienna where Starbucks Express website. They just make the call or click the mouse belote had a la opening for its first Austrian store. Helmut Spuidich, arrive at the store and their beverage would be waiting with business editor for the paper de Sandal predicted that Star their name printed on the cup. The company decided in 2003 that bucks would attract a younger crowd than would the established thicavation had not succeeded and eliminated the service s Telechouses in Viare nice, but they are pildistan And Starbucks continues to try other fundamental stud bucks is considered hipe ay T o d ote lif Starsount on its outral to Wir welcome "PP YILUSULUMNL.com/viewer/secure/pdt/Svtqvocne603060ifuf100ak 1t6u21t/v3817dqc9c1rbrotjrclmrn42818tehq/1578504000000/ Termame p our the cup The company decor in 2003 har DOCES WOLNE jonger crowd than won the the innovation had not succeeded and eliminated the service. cafes. The coffeehouses in Vienna are nice, but they are old. Star And Starbucks continues to try other fundamental store bucks is considered hip," he says. changes. It announced expansion of a high-speed wireless Internet But if Starbucks can count on its youth appeal to win a welcome in service to about 1,200 Starbucks locations in North America and new markets, such enthusiasm cannot be counted on indefinitely. In Europe. Partners in the project-which Starbucks calls the world's Japan, the company beat even its own bullish expectations, growing to largest W-Fi network-include Mobile International, a wireless sub over 900 stores after opening its first in Tokyo in 1996. AMuent young sidiary of Deutsche Telekom, and Hewlett-Packard. Customers sit Japanese women like Anna Kato, a 22 year old Toyota Motor Corp. in a store and check e-mail, surf the web, or download multimedia w orker, loved the place. "I don't care if it costs more, as long as it tastes cat12354_case_CS1-1-C81-20.indd 3 4/18 11:04 AM CS1-4 Part 6 Supplementary Material sweet," she says. sitting in the world's busiest Starbucks, in Tokyo's Shibuya district. Yet same store sales growth has fallen in Japan, Star bucks' top foreign markel, as rivals offer similar fare. Meanwhile in England. Starbucks' second-biggest overseas market, with over 400 stores, imitators are popping up len and right to steal market share. Entering other big markets may be couple yet The French seem to be ready for Starbucks' sweeter Laste, says Philippe Bloch, cofounder of Columbus Cafe, a Starbucks like chain. But he won ders if the company can profitably cope with France's arcane regu lations and generous labor benefits. And in Italy, the epicenter of European coffee culture, the notion that the locals will abandon their own 200,000 colte bars en masse for Starbucks strikes many as ludicrous. For one. Italian coffee bars prosper by serving food as well as collce, an area where Starbucks still struggles. Also, Italian coffee is cheaper than U.S. ava and say Talian purists, inuch bet fer. American pay about S1,50 for an espresso n orthern Italy, the price in the south jus t sellist that Starbucks c all will come to lay the letter whe a green circle logo that closely resembles that of Starbucks. Conve nience stores also are packed with canned coffee drinks, including Coca-Cola Cos Georgia brand and brews with extra caleine or made with gourmet coffee beans. Schultz declined to speculate on exactly how much cofree Star bucks might sell through Japan's convenience stores. We wouldn't be doing this if it wasn't important both strategically and economi cally," he said The company has no immediate plans to introduce the beverage in the United States, though it has in the past brought home prod ucts launched in Asia. A green tea frappuccino, first launched in Asia was later introduced in the United States and Canada, where company officials say it was well received Starbucks has done well in Japan, although the road hasnt always tie d ot Aer cutting the ribbon on its first apun store in 1996 the company bepaapering stores at a furious pace. New shops c an croads, but the effect more of as the market became r ed. The company returned to pritability and set pois the one in Asted in the delived. cing op oc-Og-3g-apps-viewer.googleusercontent.com/viewer/secure/pdf/SvtqvoDcne603060ifuf100ak 1t6u21t/3817dqc9c1rbrotjrclmr42818tehq/1578504000000/ stions and generous boor benefits. And in Italy, the epicenter in the United States, though it is in the past brought some pros European coffee culture, the notion that the locals will abandon ucts launched in Asia. A green tea frappuccino, first launched in their own 200,000 coffee bars en masse for Starbucks strikes many Asia, was later introduced in the United States and Canada, where as ludicrous. For one, Italian coffee bars prosper by serving food as company officials say it was well received. well as coffee, an area where Starbucks still struggles. Also, Italian Starbucks has done well in Japan, although the road hasn't always coffee is cheaper than U.S. java and, say Italian purists, much bet- been smooth. After cutting the ribbon on its first Japan store in 1996, ter. Americans pay about $1.50 for an espresso. In northern Italy, the company began opening stones at a furious pace. New shops the price is 67 cents in the south, just 55 cents. Schultz insists that attracted large crowds, but the effect wore off as the market became Starbucks eventually will come to Italy. Itll have a lot to prove when saturated. The company returned to profitability, and net profits it does. Carlo Petrini, founder of the antiglobalization movement jumped more than sixfold to 3.6 billion yen in 2007, declined again to Slow Food, snilts that Starbucks substances served in styrofoam" 2.7 billion yen in 2009, and increased again to 6 billion yen by 2013. won't cut it. The cups are paper, of course. But the skepticism is real in Japan, the firm successfully developed a broader menu for its As Starbucks spreads out, Schultz will have to be increasingly stores, including customized products-smaller sandwiches and less sensitive to those cultural challenges. For instance, he flew to Israel sweet desserts. The strategy increased same store sales and overall several years ago to meet with then Foreign Secretary Shimon profits. The firm also has added 175 new stores since 2006, including Peres and other Israeli officials to discuss the Middle East crisis. some drive through service. But McDonald's also has attacked the He won't divulge the nature of his discussions. But subsequently Japanese market with the introduction of its McCafe coffee shops. at a Seattle synapogue, Schultz let the Palestinians have it. With Starbucks opened its first store in Africa in 2016, hoping to tap Starbucks outlets already in Kuwait, Lebanon, Oman, Qatar, and into an expanding consumer class, despite an overall weakness in the Saudi Arabia, he created a mild uproar among Palestinian support economy. It will open up just 12 to 15 stores initially, despite a capac ers. Schultz quickly backpedaled, saying that his words were taken ily on the continent of 150 stores, according to company estimates out of context and asserting that he is pro peace for both sides. In 2018, China was opening a new store every 15 hours, with 3,000 There are plenty more minefields ahead. So far, the Seattle cof planned over the next few years. Shanghai now boasts the largest Star fee company has compiled an envious record of growth. But the fucks store in the world. Startuck is pushing a coffee culture in China giddy buzz of that initial expansion is wearing off. Now, Starbucks where the reward will be healthy, longterm, profitable growth for decades is waking up to the grande challenges faced by any corporation bent to come. CEO Kevin Johnson said. Meanwhile in North America on becoming a global powerhouse. Starbucks is struggling to maintain growth above inflation rates In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business in Japan, beyond cafes QUESTIONS and into convenience stores, with a line of chilled coffee in plas tic cups. The move gives the Seattle-based company a chance to As a guide use Exhibit 1.3 and its description in Chapter I. and do grab a chunk of Japan's S10 billion market for coffee sold in cans. the following bottles, or vending machines rather than made to order at cafes. It 1. Identify the controllable and uncontrollable elements that is a lucrative but fiercely competitive sector. but Starbucks, which Starbucks has encountered in entering global markets. has become a household name since opening its first Japanese store, is betting on the power of its brand to propel sales of the new 2. What are the major sources of risk facing the company! Dis drinks. Also, introducing tea to the menu in 2015 caused a 7 per cuss potential solutions cent increase in sales. Stores in Japun now number close to 1.700. Critique Starbucks overall corporate strategy Starbucks is working with Japanese beverage maker and distribe 4. What advice would you have for Starbucks in Africa in China utor Suntory Lid. The "Discoveries and Doubleshot lines are the company's first foray into the ready to drink market outside is for more information North America, where it sells a line of boilet and come coffee. It also underscores Starbucks' determination to expand its presence S cene Carlisle, and Chester in Asia by catering to local tastes. For instance, the new product Sho M th e