1. Sarah Fitzgerald
Lauren Norris
Matt Mariella
Towson University
MNGT 481

2. 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

3. 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

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

5. 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

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

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

8. Market Share

9. 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

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

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

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

13. 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

14. 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

15. 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

16. 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

17. 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

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

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

20. 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.

21. 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

22. 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

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

24. 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

25. 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.

26. 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.

27. 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. ***

28. 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.

29. 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

30. 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

31. 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

32. The End