Starbucks Harvard Case Solution & Analysis

Is Starbucks growing in the best way possible?

Starbucks is achieving growth through expending into national and international markets through specialty coffee agreements, business ventures and grocery stores. This strategy is quite sensible because Starbucks have very good knowledge of coffee products and it has large variety of coffee products for offering to the new markets, however, Starbucks is delaying its marketing strategy which can help in order to create public awareness about the availability of Starbucks’ coffee products in their local grocery stores. Moreover, sales through venture, specialty coffee agreements and grocery retailers do not give a unique experience of Starbucks’ retail outlets, which is aimed to provide a community service in addition to coffee products; which can undermine the potential growth. Therefore, Mr. Schultz’ concern is somehow valid because Starbucks can achieve more growth through establishment of its own outlets instead of growth through other means and third parties might damage the public image of Starbucks.

Is Starbucks overextending in its quest for growth?

Starbucks offers unique coffee products at premium prices, which limit the target customers to high class coffee consumers, therefore, establishment of new distribution channels will overextend its operations and this will not contribute to profit maximization in contrast if Starbucks pursue its growth through establishment of own outlets or through offering competitive prices. However, the coffee market is not growing fast but Starbucks is extending its operations to other regions and remote areas in order to gain growth, which will not justify the cost benefit analysis because the Starbucks will not be able to gain more than a certain market size, therefore, overextension is not required and Mr. Schultz’ concern is valid in this regard.

How Starbucks should react to the opportunities available to it?

Starbucks has the world coffee market as potential opportunity to grow its sales revenues and Starbucks can exploit its existing supply chain system to monitor and manage the inventory in world market. Moreover, through specialty coffee agreements and business ventures with market leaders in beverage industry can achieve high growth targets. Meanwhile, establishment of its own retail stores in high class areas of the world market will lead to the increase in its customer base which will strengthen its competitive position around the world. Mr. Schultz’ is recommended to exploit opportunity in the form of world market for coffee products in order to earn more revenues and should not consider McDonald’s offer.

Based on the analysis of Starbucks operations and its strategies we as a consultant will recommend Mr. Schultz to look for growth opportunities by exploring new market segments and through introducing innovative products. Product development strategy is already a part of Starbucks corporate strategy, which should be emphasized in order to attract consumers and retain the existing customers as well. In addition, the new market development strategy should be adopted as part of the international growth. Diversification strategy will not be suitable approach to grow because new product will take time to develop and their success or failure will not be confirmed whereas, coffee products have already been developed by Starbucks and they are proven to be successful. Meanwhile, lowering the price of Starbucks’ coffee product may give a lower quality signal to its consumers and Mr. Schultz should not try to adopt this strategy as part of its growth strategy. Therefore, as consultant we will recommend Mr. Schultz to pursue growth strategies through introducing innovating products to already developed markets. In addition to this, Mr. Schultz should identify new markets in order to launch Starbucks already proven coffee products.

Strategic Situation Analysis and Planning (SSAP)

Step 1: Financial Position and Performance Measure

Analysis of Starbucks’ common sized financial statements reveals that the total revenues have increased by 63% and 50% during the year 1995 and 1996 respectively. In addition, higher part of its cost comprises of sales and related occupancy cost that is 57% of total revenue but the cost of sales is not being controlled well because it has increased to 59% of total revenue during the year 1996. Moreover, the second highest component of cost is stores’ operating cost that is 32% of total revenue in 1994 and has been well under control and has been decreased to 30% of total revenue in the year 1996. Additionally, the operating profits has been maintained between 8% to 9% of total revenue during the period 1994 to 1996 and net income represents 4% of total revenue but the good thing is that they have been continuously improving and during the year 1996 net revenues have reached 6% of total revenues..................................

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