Case Study: Starbucks Growth Strategy

In 1971, three academics, English Teacher Jerry Baldwin, History Teacher Zel Siegel and writer Gordon Bowker opened Starbucks Coffee, Tea and Spice in Touristy Pikes Place Market in Seattle. The three were inspired by entrepreneur Alfred Peet (whom they knew personally) to sell high-quality coffee beans and equipment. The store did not offer fresh brewed coffee by the cup, but tasting samples were sometimes available. Siegel wore a grocers apron, scooped out beans for customers while the other two kept their day jobs but came by at lunch or after work to help out. Starbucks ordered its coffee-bean from Alfred Peet but later on the three partners bought their own used roaster setting up roasting operations in a nearby ramshackle building and developed their own blends and flavours. By the year 1980s the company had four Starbucks Stores in Seattle area and had been profitable every year. Later on, Siegel left the company and Jerry Baldwin took over day-to-day management of the company. Gordon Bowker remained as an owner but devoted most of his time in his Design Firm. In 1981, Howard Schultz, the vice president of U.S operations for Swedish Maker of stylish kitchen equipment and coffeemakers decided to pay Starbucks a visit. He was curious about why Starbucks was selling so many of his company products. He was impressed with the company management and product quality. Schultz was given the job of heading marketing and overseeing the retail stores.

Howard Schultz spent most of his working hours in the four stores learning the retail aspects of the company business; Schultz was overflowing with ideas for the company. His biggest inspiration and vision for Starbucks future came during 1983 when the company sent him for an international house wares show to Milan, Italy. There he spotted an espresso bar and went to take a coffee. He was so impressed with the coffeehouse services that he decided to stay in Milan for a week to explore all coffee bars and learned as much as he could about the Italian passion for coffee drinks. He made a decision to serve fresh brewed coffee, espressos, and cappuccinos in its stores and try to create an American version of Italian coffee bar culture. He shared his idea with Baldwin and it took nearly a year to convince Jerry Baldwin to let him test an espresso bar. In April 1984, the first espresso bar was opened and it was a massive success. Yet Baldwin felt something is wrong. After Schultz failed to convince Baldwin for the expansion of business, he left Starbucks in 1985. Schultz started the Il Giornale coffee bar chain in 1985 and the coffeehouse was very successful. In 1987 Starbucks owner Jerry Baldwin and Bowker decide to sell the whole Starbucks chain to Schultzs Il Giornale, which rebranded the Il Giornale outlets as Starbucks and quickly began to expand. Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois, that same year. At the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165 outlets. Today, Starbucks coffee shops and Kiosks can be found in a variety of shopping centres, office buildings, bookstores, and other outlets. Starbucks is capitalizing on taste changes that predate the companys founding. In the early 1960s, American adults consumed on an average of three cups of coffee each day. Today, consumption has declined to less than two cups, with only half of American adults as coffee drinkers. During this time, decaffeinated coffee sales soared.

In addition, a new category of intensely loyal coffee drinkers was born. This group of adults consumes specialty or premium coffees, including regular and decaffeinated versions with a variety of origins and flavours. Sales of specialty coffee have climbed from about $45 million annually to more than $2 billion today, accounting, for about 20 percent of all coffee sales. World-famous coffeehouse chain, Starbucks, accounted for 35,711 stores worldwide in 2022. There were more international stores than those located in the company's home nation of the United States. These figures amounted to 19,838 and 15,873, respectively. What country has the most Starbucks? Countries with most Starbucks locations globally as of October 2022. The United States and China came top in the ranking of countries with the largest number of Starbucks stores worldwide. The famous U.S. coffeehouse chain had the most stores in its home country accounting for over 15 thousand stores. Why is Starbucks so popular? Starbucks is popular because it provides a welcoming, ambient space to enjoy its drinks. While comparatively expensive, Starbucks' drinks offer affordable luxury from a coveted brand.

The company's strategic digital strategy, limited edition drinks, and app add to its allure. Why did Starbucks enter South Africa? The vibrant and growing coffee market in the country was the prime driving factor for Starbucks to foray into the South African market. Besides, the coffee consumption was gradually showing an increasing trend among the middle- and upper-income consumers. Why is Starbucks successful internationally? Starbucks' success in its internationalization process comes down to its cultural mindfulness and intensive research of the host market. In China, tea is considered the national drink. Thus, to break into the market, the company has included a lot of products made from green tea on its menu. Where was the first Starbucks in South Africa? Starbucks opened its first store in Johannesburg in the Melrose Arch shopping centre. Adapted from various sources.

Questions:

1.1. What are some of the challenges associated with Starbucks aggressive growth strategy globally? (15)

1.2. Would you say Starbucks is successful in South Africa? Explain in detail. (10)

1.3. How would you see the competition to Starbucks in South Africa, e.g., Seattle Coffee Company, Gloria Jeans, Mugg and Bean, Costa Coffee, etc. (15)