Sarah Fitzgerald Lauren Norris Matt Mariella Towson University MNGT 481

I. Industry – Sarah Fitzgerald Products & Service Size of the Industry Financials Type of Competition Main Competitors Market Share Strategies Used by the Industry Porter’s Five Forces Forces Impacting Environment

Products & Services The Foodservice Industry The Restaurant Industry Encompasses those places, institutions, and companies responsible for any meal eaten away from home Includes restaurants catering operations and any other format The Restaurant Industry Encompasses those places that serve food and beverage QSR → Quick Service Restaurant FSR → Full Service Restaurant

Size of Industry That is 9% of today’s workforce Second largest employer after the government

Financials $1.5 Billion spent a day in the Restaurant Industry The annual revenue per employee is $35,000 A typical QSR makes around $800,000 with around 25 employees A typical FSR makes around $1.5 million with around 50 employees

Type of Competition This Industry is involved in multi-national competition This industry is all over world, both the food service and restaurant industries

Main Competitors McDonald’s Yum! Brands Darden Restaurants Starbucks Brinker International

Market Share

Strategies Used by Industry Considering the size of the Industry, it seems that all strategies are used No one specific strategy stand out Depending on the restaurant, depends on the strategy McDonalds uses the Hybrid Strategy Olive Garden uses the Global

Porter’s Five Forces Model Threats of New Entrants High Power of Buyers Very High Power of Suppliers Intensity of Competition Threat of Substitutes

Forces Impacting the Environment Consumer Income Restaurant Food Costs More Than Home Cooked Meals Quality of Food Quality of Service

II. Firm - Lauren Norris Relative Position of Starbucks History of the company Products & Services Strategy Competitive Advantage Market Financials S.W.O.T. Analysis

Relative Position of Starbucks #1 specialty coffee retailer in the world Suffering financially Causes Consumers are becoming more health conscious Economy Rising fuel costs Reached the saturation point in some U.S. markets Consumer awareness has peaked Plan Plan on closing 500 locations in the U.S. Cut 7 % of workforce or 12,000 jobs Open less U.S. stores and focus on international markets Starbucks is the #1 specialty coffee retailer in the world However, the company is suffering financially (I will discuss this in more detail when I go over the financial section) Causes Consumers are becoming more health conscious Economy Rising fuel costs Also, their expansion efforts in the U.S. backfired – affecting sales and jeopardizing firm’s success It got to the point that there were so many Starbucks in a one mile radius that they were compete against other Starbucks stores Starbucks would like to believe that they were victim to their own success, but analysts believe that the company choose poor store locations and as a result the quality of its existing locations has deteriorated I think that Starbucks has reached the saturation point in some U.S. markets Consumer know what Starbucks is all about and have already made buying decisions Plan Close 500 locations in the U.S. within the next year, that are not profitable or expected to provide acceptable returns in the future In turn, 12,000 jobs will be cut or 7 % of workforce Starbucks previously planned on opening up 250 new locations in the U.S. next year, but now plans to only open up 200 On the bright side, Starbucks is still growing. The company opened 2,500 new stores last year Starbucks has still has room for growth in untapped U.S. markets and great potential oversees The company plans to direct its growth efforts in international markets

Starbucks Story Founded in 1971 in Seattle, Washington Originally called Starbucks Coffee, Tea & Spices Founders - Jerry Baldwin, Zev Siegel, and Gordon Bowker Got idea from friend who had a specialty coffee shop in California Howard Schultz joined the company in 1982 Inspired by a trip to Italy Started selling espresso drinks in restaurants Schultz purchased company in 1987 Starbucks was founded in 1971 in Seattle, Washington It was originally called Starbucks Coffee, Tea & Spices Founders - Jerry Baldwin, Zev Siegel, and Gordon Bowker Got idea from friend who had a specialty coffee shop in California Howard Schultz joined the company in 1982 as the Director of Retail Operations and Marketing Schultz was inspired by a trip to Italy, realizing that espresso drinks could be sold in the U.S. as well He persuaded the founders to start selling espresso drinks in restaurants which was an instant success Schultz purchased company in 1987, changed the name to Starbucks Coffee Company and started selling espresso drinks in the stores

Products & Services In stores Online Coffee and Beverages Coffee Fresh, rich-brewed coffees - 30 blends Hot & iced Italian-style espresso beverages Premium teas Water (Ethos) Food Pasties Sandwiches Salads Merchandise Home espresso machines Coffee brewers and grinders Premium chocolates Coffee mugs and accessories Gift items Entertainment Music Books Films Online Coffee Tea Equipment Gifts Mass Retailers Frappuccino DoubleShot espresso Iced coffee Coffee Liqueurs Chocolate Tazo Tea Strabucks also offers Entertainment * Music They have had a channel on Satellite radio since ’04 Customers can listen to music in-stores or online Recently partnered with Apple – customer can now download songs Use to give away a free itunes song daily, but now the company gives away a free itunes song on Tues. Customers can actually buy an itunes song while they are standing in line with Wi-Fi technology, but they have to have an iPhone, iPod touch, or laptop Books Sells books online and in stores Films Starbucks started promoting films recently Launched with Akeelah and the Bee film Used a unique approach Advertising on: Magnets Coasters And cup sleeves - Instead of posters Wanted people to interact instead of just absorbing the ad They sold scrabble game to increase their customers’ vocabulary Customers can buy movies instores or online

Strategy Differentiation strategy Expansion Starbucks pursues a differentiation strategy They produce a range of unique products that can be sold to consumers at a premium price The company also has a unique atmosphere and knowledgeable employees Starbucks became the largest specialty coffee retailer in the world through its expansion efforts – therefore, the company will continue to expand its operations

Competitive Advantage Unique, quality product Atmosphere Employees Brand recognition Economies of scale Starbucks unique quality product, atmosphere and employees give the company a competitive advantage over rivals. The name “Starbucks” in its self is a competitive advantage The company also enjoys a competitive advantage due to the massive size of its operations The Employees Go through extensive training within frist 2-4 weeks with company so that they are all knowledgable about all aspects of the core compentencies

Market World-wide 43 countries outside the U.S. 7,087 company-operated stores 4,081 licensed stores

Primary Operations U.S. International Canada U.K. Thailand Australia Germany China Singapore Puerto Rico Chile Ireland

Stock Price July 2006 High $38.33 Low $32.93 July 2008 (as of 7/13) June 1992 (16 years ago) Public offering $17. a share Starbucks has lost half of its value in the past 2 years. You can see here that the high for July ’06 was $38.33 and the high thus far for July ’08 is $16.05 The stock is actually worth less than it was during the initial public offering.

Quarterly Statements December 2007 Revenue $2,767.6 Gross Profit $1,581.6 Operating Income $333.1 Total Net Income $208.1 March 2008 Revenue $2,526.0 Gross Profit $1,419.3 Operating Income $178.2 Total Net Income $108.7 Last quarter, Starbucks reported huge losses. Revenue decreased by $241.6 million Gross profit decreased by $162.3 million Operating and net income decreased by almost half - Operating income decreased $154.9 million and Net income decreased by $99.4 million

S.W.O.T. Analysis Strengths Opportunities Brand recognition Quality product Extensive product list Atmosphere Strong human resources Good supplier relationships Large retail distribution system Strong financial history Weaknesses Dependent on a single source of income Prices high relative to competition Dependent on suppliers Merchandise in stores Opportunities Oversees markets Untapped U.S. markets Use brand name to start a new product line or business (related diversification) Threats Changing consumer tastes and preferences Economy – people may be unwilling to pay high prices Political conditions abroad may hinder expansion Reaching the saturation point in some U.S. markets I have already discussed some of these things, but it is a little easier to understand when it is laid out like this visually

III. Matt Mariella IV. Matt Mariella Analysis & Recommendations Mission Core Competencies Value Chain IV. Matt Mariella Analysis & Recommendations

Mission To establish the company as the premier purveyor of the finest coffee in the world, while maintaining its principles as the company grows Principles Provide a great work environment Embrace diversity Apply high standards of excellence Satisfy customers Contribute to the community and the environment Recognize that profitability is essential to future success

Core Competences High quality, roasted, whole bean coffee products Pastries, Ice cream, Liquor, and chocolate Coffee accessories (mugs, not espresso machines) Employees Atmosphere Core competencies are focused around premium blended coffee beans and Italian style coffee houses. Their employees are a major part in their business because they provide the friendly atmosphere that makes Starbucks who it is. Since all of the employees go through extensive training, they all know exactly what the business is all about and how the company would like things done. Starbucks has tried to expand their core competencies by offering mp3 downloads, pastries, liquor, ice cream, health and wellness breakfast foods and drinks, teas, and coffee accessories such as blenders.

Value Chain – Suppliers Raw Materials - Milk, Syrup, Coffee beans, Pastries, drinks Operational - manufacturing equipments, IT hardware/software, paper products, books, CDs, and coffee accessories, etc. Tiva Supplier Accreditation Program 5 categories to qualify Discounts to qualified suppliers Starbucks uses suppliers for virtually everything they do. Get raw Materials like milk, syrup, coffee beans, pastries, and drinks from suppliers They also get operational items like manufacturing equipments, IT hardware/software, paper products, books, CDs, and coffee accessories from suppliers Starbucks has teamed with apple in order to offer Wi-Fi internet connection in 600 of their stores in Seattle and New York. Starbucks recently they teamed with TiVA in order to create a supplier accreditation program for coffee bean vendors which allowed any supplier from around the world to rate themselves along with Starbucks’ strategies. If the suppliers are able to meet 5 criteria then they will be able to supply to Starbucks. The five criteria are: economic issues social conditions environmental impacts Verification and quality If any supplier gets a 100 percent on the test, they qualify for a $.10 per pound discount for coffee beans. TiVA is in charge of the delivery and management of the new program.

Value Chain – Distribution Channels In store distribution Drive thru Online Starbucks core competency is to create an atmosphere where people from all over the world can enjoy a freshly brewed coffee or tea. The main distribution channel is their thousands of stores nationwide. They also have drive-thrus that can be used for the on-the-go customers. Customers can also order their products online through their website. They have teamed with Sysco in order to deliver their coffee bean products. ***

Value Chain Strengths Economies of scale Supplier accreditation program Employees as a core competency Company strategy is for all employees to know the core competencies inside and out Related diversification helps core competencies /competitive advantage Weaknesses Dependant on suppliers Not very vertically integrated Losing sight of core competencies The strength of their value chain is that the core competencies are the main focus. They are a huge company so they are able to utilize economies of scale in whatever they purchase. Their supplier accreditation program is a plus because they are able to make sure that all of their suppliers are in line with their vision. They also view their employees as their core competency because the employees create the environment for the customer. Their culture is incorporated into their core competency which in my opinion gives them competitive advantage over other coffee distributors. Their weakness is that they rely on their suppliers for the quality coffee beans they do not own any of their own fields. They are also loosing focus of their core competencies because they are trying to form strategic alliances and integrate but they are not going into the right fields.

Analysis - Problems Economy is slowing business Competitors offering lower priced drinks Rising fuel costs Locations Reaching saturation point in some U.S. markets Consumer awareness has peaked Criticized for using coffee beans not on the fair trade market Have a lot of inventory that is not being sold

Analysis - Starbucks Solution Closing 500 stores Firing 12,000 employees Horizontal integration Music, CD, Book Start Using pre-ground coffee beans $1 refillable coffee short cups Start purchasing fair trade coffee beans Opening 600 Wi-Fi stores in New York and Seattle

Recommendation Offer free entertainment Expanding sales of liquor, chocolate, or ice cream Continue purchasing fair trade coffee beans Choose smarter locations for stores Seek talented employees to support growth Refocus on core competencies – premium coffee (not $1) Stop using pre-ground coffee beans because of loss of aroma Coffee making process Follow 4 principles Use the right proportion of coffee to water Use fresh boiled water Use fresh ground coffee (can’t sit more than 20 mins.) Brew the coffee for the right amount of time Continue blending new coffee beans together to make new products

The End