Case: Starbucks Retail StrategySince its early days in the $1980$s$,$ Starbucks has been the leading retailer of specialty coffee and beans and related food and merchandise. Its most recent annual revenues were $$9\mathrm{.}8$ billion from $8,832$ company$-$owned stores and $7,803$ licensed stores in airports and shopping centers in the United States and in $50$ countries across the world. Worldwide, the company employs $142,000$ people. Designed to provide a community gathering place and social experience as well as a premium cup of coffee or hot or cold beverage, the brand intentionally mimics the caf$$s of Italy.In addition to its direct retailing activities, Starbucks has formed strategic alliances with Unilever, Kraft Foods, and PepsiCo to expand its product and distribution port folios. Starbucks coffee beans, ice cream, and ready$-$todrink $($RTD$)$ beverages appear on supermarket and warehouse club shelves. The company promotes sustainable best practices for quality and yield among its suppliers, boasts relatively low staff turnover, and encourages customer loyalty through its Starbucks Card program.Starbucks licensed retail store operations include the Starbucks and Seattles Best Coffee brands. In addition to having store locations in more than $50$ countries, Starbucks licenses the right to produce its products both in the United States and abroad through several partnerships. These include the North American Coffee Partnership, a joint venture with PepsiCo, Inc., to manufacture and market RTD beverages, such as bottled Frappuccino, in the United States and Canada; a licensing agreement with Unilever for Starbucks superpremium ice$-$cream products in theUnited States; a licensing agreement with a partnership formed by Unilever and Tazo Tea RTD beverages in the United States; and licensing agreements for the manufacturing, marketing, and distribution of Starbucks Discoveries and Starbucks DoubleShot in Japan and Korea. Starbucks sells its branded coffee beans in $39,000$ supermarkets and mass merchandise stores domestically and abroad through an agreement with Kraft and has a partnership with Jim Beam through which it developed a coffee liqueur.Several alternative channels include the sale of whole beans through Nordstrom department stores and coffee by the cup in caf$$s in Barnes & Noble bookstores. Additional channels include distribution through service providers like Holland America Cruise Lines, United Airlines, and Sheraton and Westin Hotels.Starbucks was nearly synonymous with premium coffee beverages and seemed to be on an unstoppable growth trajectory until Howard Schultz, the companys founder, chairperson, and CEO, left his daily leadership role to become owner of the Seattle Supersonics. Schultz soon realized his move was a mistake for both himself and Starbucks. Store traffic was falling for the first time in U$.$S$.$ stores, and competition from premium brands and mass$-$market coffee vendors gnawed at Starbucks market share. In addition, the economy had soured. In $2008,$ Schultz returned to the companys helm, reawakening the vision of the Starbucks brand and initiating a transformation process that involved cost reductions, quality improvements in every aspect of the companys operations, and a renewed commitment to providing a unique customer experience. Two years later, despite the still$-$sluggish economy, Starbucks is once again on a profitable path.THE COFFEE MARKETThe commercial market for coffee began in AD $1000$ when Arab traders brought the coffee tree from its native Ethiopia to the Middle East. Over the next $200$ years, coffee drinking spread throughout the Arab world and was eventually introduced in Europe in the $1500$s by Italian traders. By $1650,$ coffeehouses emerged as popular meeting places in England and France. Well$-$known public figures frequented London coffeehouses to discuss political and literary issues. Coffee consumption flourished in the mid$-20$th century, aided by developments in manufacturing and cultivation. By $1940,$ large coffee processors such as Nestl$($Hills Bros. brand$),$ Kraft General Foods $($Maxwell House$),$ and Procter & Gamble $($Folgers$)$ developed instant and decaffeinated coffee varieties in addition to their staple regular ground.Supermarkets emerged as the primary distribution channel for traditional coffee sales.In the late $1980$s$,$ per$-$capita coffee consumption fell slowly and steadily as consumers turned to soft drinks, bottled water, juices, and iced teas. The three major manufacturersProcter & Gamble, Nestl$,$ and Kraft fought for market share in a stagnant market. All the major coffee brands were unprofitable. In an effort to regain profitability, the majors decreased their historically high expenditures on image advertising, increased the use of robusta coffee beans $($as opposed to high$-$ quality Arabica beans$)$ to reduce costs, and converted from $16-$ounce to $13-$ounce cans, claiming that the contents produced the same amount of coffee. Coupons and in$-$store promotions dominated manufacturer marketing plans as the price war continued.THE STARBUCKS COFFEE COMPANY: BACKGROUNDInspiration for the present Starbucks concept came to Howard Schultz when he went to Italy on a buying trip in $1983.$ While wandering through the ancient piazzas of Milan, Schultz took particular note of the many cheerful espresso bars and caf$$s he passed. Italians, he felt, had cap tured the true romance of the beverage. Coffee drinking was an integral part of the Italian culture, but Americans lacked the opportunity to savor a good cup of coffee while engaging in good conversation in a relaxed atmosphere. He returned to the United States convinced that Ameri cans would find the Italian coffeehouse culture attractive. In $1987,$ Schultz bought Starbucks.RETAIL OFFERINGStarbucks offers more than a cup of coffee; it offers an experience that includes the beverage, the store, the ser vice, and an opportunity to take a break from lifes hectic pace to relax with friends or mull over a thorny problem. In short, Starbucks offers the coffee experience Schultz imported from abroad.Although designs vary in any particular store to match the local market, the typical Starbucks store works around a planned mix of organic and manufactured components: light wood tones at the counters and signage areas; brown bags; polished dark marble countertops; glass shelves; thin, modern, white track lighting; and pure white cups. Even the logo delivers the double organic$/$modern message:The Starbucks icon is earthy$-$looking yet rendered in a modern abstract form, in black and white with a band of color around the center only. The colors of the lamps, walls, and tables mimic coffee tones, from green $($raw beans$)$ to light and darker browns. Special package and cup designs are coordinated to create livelier, more colorful tones around holidays. Starbucks also keeps its look lively with rotating in$-$ store variations based on timely themes.Starbucks stores are spacious so that customers can read in overstuffed chairs, gather around tables, or wander around the store while drinking their coffee. Stores sell pastries, breakfast sandwiches, and lunch offerings as well as coffee paraphernalia ranging from coffee beans and mugs to French presses and home cappuccino machines. Although coffee beverages are standardized across outlets, food offerings vary from store to store. Starbucks also has strict quality standards. For exam ple, espresso is brewed precisely $18$ to $23$ seconds and thrown away if not served within $10$ seconds of brewing. Coffee beans are donated to charities if they are still in the store seven days after coming out of their vacuum$-$sealed packs. Drip coffee is thrown away if it is not served within an hour of making it$.$ Throughout the store, there exists a keen attention to aroma: Employees are not allowed to wear colognes, stores use no scented cleaning products, and smoking is verboten.HUMAN RESOURCE MANAGEMENTThe company, recognizing that its frontline employees are critical to providing the perfect cup, has built an organizational culture based on two principles: $(1)$ strict standards for how coffee should be prepared and delivered to customers and $(2)$ a laid$-$back, supportive, and empowering attitude toward its employees. As part of his recovery strategy, Schultz shared his vision with the entire workforce through memos designed to both lead and inspire. He also rolled out new training to encourage store partners, or employees, to improve service, beverage quality, and store appearance.All new hires go through an initial $24-$hour training program that instills a sense of purpose, commitment, and enthusiasm for the job. New employees are treated with the dignity and respect that goes along with their title as baristas $($Italian for bartenders$).$ To emphasize their responsibility in pleasing customers, baristas are presented with scenarios describing customers complaining about beans that were ground incorrectly. The preferred response, baristas learn, is to replace the beans on the spot without checking with the manager or questioning the complaint. Baristaslearn to customize each espresso drink, explain the origins of different coffees, and distinguish Sumatran from Ethiopian coffees.Holding on to its motivated, well$-$trained employees is important, so all partners are eligible for health benefits and a stock option plan called Bean Stock. Baristas know about and are encouraged to apply for promotions to store management positions. Every quarter, the company has open meetings at which company news, corporate values, and financial performance data are presented and discussed. Due to the training, empowerment, benefits, and growth opportunities, Starbucks turnover is only $70$ percent. This total is considerably less than the $150$ to $200$ percent turnover at other firms in the food service business.LOCATION STRATEGYTraffic is the major determinant in selecting cities and locations for retail stores. Because Starbucks can tailor the size and format of its stores to the surrounding community, stores can be located in nearly any high$-$traffic, high visibility location, including college campuses, office buildings, downtown or suburban settings, and rural or off$-$highway locations. The company operates approximately $2,650$ drive$-$ thru locations and continues to expand development of these businesses. Starbucks retail expansion strategy has historically been based on conquering one area of a city or region at a time. Centralized cities served as hubs or regional centers for rollout expansions into nearby markets $($e$.$g$.,$ Chicago as a hub for the Midwest$).$ Clustering was also key to its location strategy. Major markets were saturated with stores before new markets were entered. For example, there were over $100$ Starbucks in the Seattle area before the company expanded to a new region. Having many stores in close proximity to one another generally increased overall revenues. However, comparable store sales growth eventually slowed due to cannibalization. In response to the increasing competition and drop ping traffic, Schultz and his management team elected to close $800$ underperforming stores in the United States and $100$ international stores. However, the fundamental strategy for new store openings remains the same.SUPPLY CHAINIn the $1990$s$,$ the specialty coffee market experienced substantial growth, driven largely by the coffee$-$drinking habits of college graduates and young professionals. While retailers like Starbucks benefited from this growth, coffee growers and suppliers did not, due to the worldwide oversupply of lower$-$grade coffee beans. Although Starbucks promised the highest$-$quality Arabica beans and paid premiumprices, all growers suffered from the oversupply. Even though Starbucks dominated the specialty coffee industry, it did not use its purchasing power to negotiate lower prices from growers and suppliers and squeeze their profits. Instead, the company decided to use its market power to implement social change within its supply chain. It partnered with Conservation International, an environmental nonprofit organization, to develop CAFE $($Coffee and Farmer Equity$)$ practices. These practices are designed to build relationships beneficial to growers and suppliers; increase economic, social, and environmental sustainability; and promote transparency and economic fairness within the supply chain. Economic incentives en courage suppliers to adhere to these standards.The CAFE practices further encouraged farmers to ensure their workers wages and safety standards met or exceeded the minimum requirements established under local and national laws. Suppliers that scored well on the independently assessed CAFE practices received a price premium and the largest orders. Starbucks ultimate goal is to buy the majority of its beans from suppliers that meet CAFE standards. The company also operates Farmer Support Centers in Costa Rica and Rwanda. These centers, staffed by agronomists and sustainability experts, provide information and implementation support for sustainable best practices for quality and yield to coffee farmers.GROWTH STRATEGIESWith the company back on solid footing, executives are planning controlled growth internationally of both retail and licensed stores and selective development of new distribution channels. The company will focus initially on growth in markets where the brand already has a strong presence, but it is also viewing China as potentially the largest market for Starbucks outside the United States. Innovative products that improve the customer experience will fuel growth, as will new products introduced in the grocery channel. Among recent in$-$store innovations are new food and beverage pairings and discount offerings, healthier food choices, and the launch of VIA Ready Brew, an instant coffee that meets Starbucks standards. Executives describe VIA as an important new growth plat form and a significant innovation in instant coffee, a market worth $$21$ billion globally. To ensure strategies appeal to its target market, Starbucks engages consumers through social media and the companys My Starbucks Idea Web sites. New iPhone applications launched by the company help customers locate stores, search for nutrition information, and reload Starbucks Cards.CHANGING CUSTOMER BASEAs Starbucks grew, its customer base evolved. Starbucks historical customer profileaffluent, well$-$educated, white$-$collar women between the ages of $24$ and $44$ years expanded. For example, about half of the stores in southern California welcome large numbers of Hispanic customers. Newer customers tended to be younger, less well educated, and in a lower income bracket than Star bucks more established customers. These newer customers were more interested in convenience than the experience, so Starbucks installed automatic espresso machines in its stores. But as mass$-$market vendors like McDonalds and Dunkin Donuts improved their coffee offerings and touted their lower prices and premium brands like Peets threatened Starbucks dominance, the company realized that its drive toward convenience was commoditizing the Starbucks experience. Returning to the company core values and guiding principles, including quality beverages and customer service, has been fundamental to reversing the companys slide.THE TRANSFORMATION JOURNEYSchultzs campaign to restore Starbucks to preeminence involved a rigorous and disciplined review of all aspects of the business, with special attention paid to operational efficiency from the beginning of the supply chain to the barista at the counter. One result was trimming $$580$ million in costs from the business. But another was investing in the companys core values, including a significant sum spent to bring Starbucks employees to a city hit by hurricane Katrina. The staff spent their time there as volunteers, fixing up houses and cleaning roads. The project, says Schultz, reminded staff of the companys commitment to being an important part of the community and helped reinstall company values. The company also invested in technology and tools that increase the speed and lower the cost of bringing new products and strategies to market and better staff training to improve the customer experience.While the recession lingers and no retailer can afford to be complacent, Starbucks has managed an impressive recovery that solidifies its unique image in a competitive market. Schultz insists on taking responsibility for past errors and on remembering the lessons learned. Nevertheless, Starbucks resurrection acts as an illustration of how a corporation can be turned around by aligning employees behind a provocavision that is backed by careful strategy. Write a brief report on the above