One thing that all managers do is plan. The planning they do may be extensive or it may be limited. It might be for the next week or month or it might be for the next couple of years. It might cover a work group or it might cover an entire division. No matter what type or extent of planning a manager does, the important thing is that planning takes place. Without planning, there would be nothing for managers to organize, lead, or control. Based on the numerous accomplishments that Starbucks has achieved through the efforts of its employees, managers, no doubt, have done their planning.
Company Goals As of April 2006, Starbucks had 11,377 stores in 37 countries. During the 30 weeks that ended April 30, the company opened 755 new stores in the United States and 381 new stores overseas. However, that's a far cry from where the company wants and intends to be someday. CEO Jim Donald says Starbucks' long-term goal is 15,000 U. S. stores and 30,000 stores globally. For 2006, the company's goal is to open approximately 1,800 new stores globally and to reach about $7. 6 billion in revenues.
Goals for the next 3 to 5 years include attaining total net revenue growth of 20 percent and earnings per share growth between 20 to 25 percent. In addition to its financial and other growth goals, Starbucks has an even "glitzier" goal. It wants to have a hand in helping define society’s pop culture menu. Although this goal takes Starbucks beyond its coffee roots, it seems to fit well with the unconventional approach to business that Howard Schultz has followed from the beginning. Company Strategies Starbucks has been called the most dynamic retail brand conceived over the last 2 decades.
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It has been able to rise above the commodity nature of its product and become a global brand leader by reinventing the coffee experience. Millions of times each week, a customer receives a drink from a Starbucks barista. It’s a reflection of the success that Howard Schultz has had in creating something that never really existed in the United States—cafe life. And in so doing, he created a cultural phenomenon. Starbucks is changing what we eat and drink. It’s altering where we work and play. It’s shaping how we spend time and money. No one is more surprised by this cultural impact than Howard Schultz.
He says, "It amazes all of us how we've become part of popular culture. Our customers have given us permission to extend the experience. " Starbucks has found a way to appeal to practically every customer demographic as its customers cover a broad base. It’s not just the affluent or the urban professionals and it's not just the intellectuals or the creative types who frequent Starbucks. You'll find soccer moms, construction workers, bank tellers, and clerical assistants at Starbucks. And despite the high price of its products, customers pay it because they think it's worth it.
What they get for that price is some of the finest coffee available commercially, custom preparation, and, of course, that Starbucks ambiance——the music, the comfy chairs, the aromas, the hissing steam from the espresso machine—all invoking that warm feeling of community and connection that Schultz experienced on his first business trip to Italy and knew instinctively could work elsewhere. There's no hiding the fact that Starbucks’ broad strategy is to grow into a global empire. Howard Schultz says, "We are in the second inning of a 9-inning game. We are just beginning to tap into all sorts of new markets, new customers, and new products. But any growth that Starbucks pursues is done so with great care and planning. CEO Jim Donald says that all company growth is governed by whether quality can be maintained. If there is any uncertainty about quality, a new strategy won’t fly, no matter how good it might seem. Starbucks has designed its growth strategies to exploit the customer connections it has so carefully nurtured and the brand equity it has so masterfully built. And company executives have taken the company in new directions even while continuing to grow store numbers and locations and increasing same—store sales.
As the world’s number-one specialty coffee retailer, Starbucks sells coffee drinks, food items, coffee beans, and coffee—related accessories and equipment. In addition, Starbucks sells whole bean coffees through a specialty sales group and grocery stores. Starbucks has grown beyond coffee into related businesses such as coffee—flavored ice cream and ready-to-drink coffee beverages. These Starbucks branded products have been developed with other companies. For instance, its Frappuccino and DoubleShot coffee drinks were developed with Pepsi-Cola.
Its Starbucks Ice Cream was developed with Dreyer's. In early 2006, Starbucks launched its ready-to-drink coffee drink, Starbucks Iced Coffee, through a joint venture with Pepsi-Cola. The company extended its success at brand extensions to selected global markets when it launched a fresh Starbucks-branded premium ready-to-drink chilled coffee called Starbucks Discoveries in convenience stores in Taiwan and Japan. This product was enthusiastically embraced by customers immediately. In addition, Starbucks markets a selection of premium tea products since its acquisition of Tazo, LLC.
Starbucks has also pursued other strategic initiatives to enhance its core business. For instance, in November 2001, the company launched the Starbucks prepaid card. Since that time, more than 77 million prepaid cards have been activated and loaded with more than $1 billion. The director of Starbucks global card services says, "We've been pleasantly surprised by the card business, by how fast it's grown in percentage of tender, and how people use the card. It offers so many opportunities to grow from there. It's one of our fastest-growing channels. Industry experts say that part of the reason for its success is its dual use--as gift cards and for customer loyalty. Also important to its success, however; is the fact that the company has made it easy to purchase, reload, and use. The company is on the leading edge in finding innovative ways to get the prepaid cards into potential customers' hands such as parent—student cards, gift-card malls, and business gifts and incentives. Having conquered the coffee business, one of the company’s most interesting brand extensions has been music. Selling music at Starbucks began when a store manager made tapes for his store.
These tapes proved to be so popular that the company began licensing music compilation CDs for sale. Initially, Howard Schultz had to be persuaded about this product and recalls, "I began to understand that our customers looked to Starbucks as kind of editor. It was like . . . we trust you. Help us choose. " And it you think about it, music has always been part of the cafe or coffeehouse experience. In addition to selling its private—label CDs, the company launched the HearMusic Cafe in Santa Monica, California, in March 2004. At these stores, customers burn their own compilation CDs.
After sampling selections, if they choose to buy, customers can walk up to a music "bar" and order a custom CD with any variation of songs and have it delivered to their table when it’s completed. Based on the success Starbucks has had with music, it decided to selectively link the Starbucks brand with certain kinds of movies, the first being Akeelah and the Bee. The president of Starbucks Entertainment division says, "Movies are a very important part of our entertainment strategy. The thought was to start with music, build some success, establish credibility, and then move into films. Eventually, the company wants to be a destination not just for java but also for music, movies, books, and more. Not everything that Starbucks touches turns to gold. One of its big flops was a magazine called Joe launched by the company and Time. It lasted three issues before being called off. A carbonated coffee beverage product called Mazagran, developed with Pepsi—Cola, never made it to market. Too, Starbucks decided to close its Torrefazione Italia cafes when they didn't meet the goals set for them. What about the core industry Starbucks is in? How is it doing? The hot drinks market continues to sizzle.
It's forecasted to increase 10. 9 percent between now and 2010. In addition, the 2006 National Coffee Drinking Trends report of the National Coffee Association of the United States says that coffee tied soft drinks in daily market penetration for the first time since 1990. And Starbucks wants to remain at the forefront of the industry. Some 24 percent of Starbucks customers visit 16 times per month—a number that no other fast—food chain even comes close to. There's no doubt that Howard Schultz has built and continues to build Starbucks to be big. Growth has been funded through cash flow, not by selling stock or by using debt financing.
Some of the new ideas to be implemented include an aggressive roll-out of drive-through windows, which now number more than 1,000 U. S. locations and 35 Canadian sites; a co-branded Web site between Yahoo! and Starbucks where online daters can arrange to meet and drink free coffee; a partnership between Starbucks and Kellogg that created a hot breakfast product; and two new banana-based blended drinks. Discussion Questions 1. Starbucks has some pretty specific goals it wants to achieve. Given this, do you think managers would be more likely to make rational decisions, bounded rationality decisions, or intuitive decisions?
Explain. 2. Give examples of decisions that Starbucks managers might make under conditions of certainty. Under conditions of risk. Under conditions of uncertainty. 3. Make a list of Starbucks’ goals. Describe what type of goal each is. Then, describe how that stated goal might affect, how the following employees do their jobs: (a) a part-time store employee-—a barista—in Omaha; (b) a quality assurance technician at the company's roasting plant in Carson City, Nevada; (c) a regional sales manager; (d) the senior vice president of new markets; and (e) the CEO. . Discuss the types of growth strategies that Starbucks has used. Be specific. 5. Evaluate the growth strategies Starbucks is using. What do you think it will take for these strategies to be successful? 6. What competitive advantage(s) do you think Starbucks has? What will it have to do to maintain that (those) competitive advantage(s)? 7. Do you think the Starbucks brand can become too saturated·—that is, extended to too many different products? Why or why not? 8. What companies might be good benchmarks for Starbucks? Why?
What companies might want to benchmark Starbucks? Why? 9. Describe how the following Starbucks managers might use forecasting, budgeting, and scheduling (be specific): (a) a retail store manager; (b) a regional marketing manager; (c) the manager of global trends; and (d) the CEO. 10. Describe Howard Schultz as a strategic leader. 11. Is Starbucks "living" its mission? Explain. (You can find the company mission on its Web site, www. starbucks. com or in the continuing case found at the end of Part 2. 12. Do a brief SWOT analysis of Starbucks.
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