Starbucks Case 25 Notes
Starbucks in 2020: Growth & Operational Excellence
Founded in 1987 as a nine-store operation in Seattle.
Became the premier roaster, marketer, and retailer of specialty coffees.
Over 32,000 store locations in 78 countries as of April 2020.
Annual sales of billion in fiscal year 2019 (ending September 30, 2019).
Brands and products include:
Starbucks Reserve
Teavana teas
Seattle's Best Coffee
Evolution Fresh juices and smoothies
Ethos bottled waters
Torrefazione Italia Coffee
Princi bakery products.
Stores sell baked pastries, sandwiches, salads, grain bowls, oatmeal, yogurt parfaits, and fruit cups.
In January 2017, Howard Schultz launched a strategic initiative to inject innovation and spur growth:
Open 20-30 Starbucks Reserve™ Roasteries and Tasting Rooms showcasing coffee roasting and brewing.
Multi-level stores with decorations.
Seating for thousands of patrons.
Multiple coffee bars with innovative beverages and food.
Community tables, lounge areas with fireplaces, mixology bar, dining venues, and Princi bakery.
Roasteries opened in Seattle, Shanghai, Milan, New York, Chicago, and Tokyo.
Open 1,000 Starbucks Reserve stores worldwide to promote Starbucks Reserve™ coffees.
Intimate small-lot coffee experience.
Menu of handcrafted hot and cold beverages, teas, ice cream/coffee beverages, small plates, sandwiches, desserts, wines, and beer.
Packages of Starbucks ReserveTM whole bean coffees for purchase.
Four brewing methods for coffees and teas.
43 Starbucks Reserve locations in February 2020.
Transform 20% of existing Starbucks stores into upgraded Starbucks Reserve coffee bars.
Leadership Transition and Strategy Shift
Howard Schultz stepped down as Starbucks CEO, Kevin Johnson took over.
Schultz remained as chairman, focusing on social initiatives and upscale Roastery locations and Starbucks Reserve brand.
Johnson scaled back Schultz's transformational strategic moves due to cost and profitability concerns.
Johnson steered Starbucks back to its established strategic path:
Maintain Starbucks as a recognized and respected brand focused on customer experience.
Continue disciplined expansion, especially in high-growth markets like China.
New stores in China opened at a rate of 1 every 15 hours during fiscal 2018 and 2019.
4,351 company-operated stores in China as of March 31, 2020.
Shanghai had over 600 Starbucks stores.
Goal to have 5,000 stores in China by 2021.
Optimize the mix of company-operated and licensed stores based on business and political circumstances.
Offer new coffee and other products across diverse channels and formats.
Enhance social responsibility, ethical sourcing, community contribution, and environmental protection.
Company Background and Early History
1971: Starbucks founded by Jerry Baldwin, Zev Siegel, and Gordon Bowker as Starbucks Coffee, Tea, and Spice in Seattle's Pike Place Market.
Early 1980s: Four stores, profitable each year since opening.
Howard Schultz's vision
1981: Howard Schultz visited Starbucks, impressed by the store's atmosphere and coffee quality.
1982: Schultz joined Starbucks as head of marketing and oversaw retail stores.
Schultz learned the retail aspects of the coffee business, including roasting techniques.
1983: Schultz visited Milan, Italy, and was inspired by the Italian coffee bar culture which was an integral community gathering place.
He observed thousands of coffee bars, each with its unique character and a barista with flair.
He saw potential to recreate the Italian coffee bar culture in the United States as Starbucks' differentiating factor.
Internal Conflicts and Departure
Schultz's ideas to modify Starbucks' stores were resisted by the owners, who saw Starbucks as a retailer, not a restaurant.
1984: Schultz was allowed to test an espresso bar in a corner of a new store, which became successful.
The lead owner was uncomfortable with the success and wouldn't agree to introduce beverages in other stores.
Schultz left Starbucks in late 1985 to start his own company.
Il Giornale Venture
Schultz raised money and founded Il Giornale Coffee Company.
First store opened in April 1986, with Italian décor, opera music, and baristas in white shirts and bow ties; no chairs.
Aspects of the format were modified to suit Seattle tastes.
By mid-1987, three stores were running at a rate equal to million annually.
Acquisition of Starbucks
March 1987: Starbucks owners decided to sell the whole operation.
Schultz raised million to buy Starbucks.
August 1987: Acquisition completed; the new name was Starbucks Corporation.
Howard Schultz, age 34, became president and CEO.
Starbucks as a Private Company: 1987-1992
Schultz aimed to build a national company with values and guiding principles.
He wanted Starbucks to be the most respected brand name in coffee and admired for corporate responsibility.
Business plan called for opening 125 stores in five years.
Management lacked experience in such growth.
Changes:
New logo melded Starbucks and Il Giornale designs.
Stores equipped with espresso machines and remodeled to look more Italian.
Il Giornale green replaced Starbucks brown.
By December 1987, employees supported the changes.
Union decertified at stores and later at the roasting plant and warehouse.
Market Expansion
First Chicago store opened in October 1987; customer counts were initially below expectations.
Freshness was ensured via FlavorLock bags.
Losses occurred until prices were raised and experienced managers were hired.
Portland, Oregon, was entered next, followed by Los Angeles and San Francisco.
Store expansion targets were exceeded.
The strategy was to open only company-owned stores to control quality.
New venture capital was raised to cover new store expansion.
Losses were posted in 1987-1989 but Schultz argued for patience and investment in infrastructure.
Starbucks became profitable in 1990.
After-tax profits increased every year since 1990.
Rapid Expansion of Starbucks Locations
1992 and 1993: Concentrated expansion in the U.S. with favorable demographics.
Large city selected as a
Starbucks was founded in 1987 as a nine-store operation in Seattle and has since become the premier roaster, marketer, and retailer of specialty coffees. As of April 2020, there are over 32,000 store locations in 78 countries, generating annual sales of billion in fiscal year 2019. The product line includes Starbucks Reserve, Teavana teas, Seattle's Best Coffee, Evolution Fresh juices and smoothies, Ethos bottled waters, Torrefazione Italia Coffee, and Princi bakery products. The stores also offer a variety of baked pastries, sandwiches, salads, grain bowls, oatmeal, yogurt parfaits, and fruit cups.
In January 2017, Howard Schultz launched a strategic initiative aimed at injecting innovation and spurring growth. This involved opening 20-30 Starbucks Reserve™ Roasteries and Tasting Rooms that showcase the coffee roasting and brewing processes. These multi-level stores feature decorations, seating for thousands of patrons, multiple coffee bars with innovative beverages and food, community tables, lounge areas with fireplaces, a mixology bar, dining venues, and Princi bakery. By February 2020, there were 43 Starbucks Reserve locations, with plans to transform 20% of existing stores into upgraded Starbucks Reserve coffee bars.
Leadership at Starbucks underwent a significant transition when Howard Schultz stepped down as CEO, passing the reins to Kevin Johnson. Schultz remained as chairman, focusing on social initiatives and upscale Roastery locations. Johnson scaled back Schultz’s transformational initiatives due to financial concerns but steered Starbucks back towards a path that maintained its brand recognition and customer experience focus. The company continued its disciplined expansion, particularly in high-growth markets like China, where new stores were opened at a remarkable rate. By March 31, 2020, there were 4,351 company-operated stores in China, with aspirations to reach 5,000 by 2021.
Starbucks’ journey began as Starbucks Coffee, Tea, and Spice, founded in 1971 by Jerry Baldwin, Zev Siegel, and Gordon Bowker in Seattle's Pike Place Market. Howard Schultz’s vision began in 1981 when he joined as head of marketing, and it was further enhanced after he was inspired by the Italian coffee bar culture during a visit to Milan. However, Schultz faced resistance from the owners regarding his ideas to modify the stores, which led to his departure to start his own coffee company, Il Giornale. After successfully running Il Giornale and raising funds, Schultz acquired Starbucks in 1987. His vision was to build a national company with values that prioritized corporate responsibility, aiming for Starbucks to become the most respected brand in coffee.
Under Schultz’s leadership, Starbucks experienced rapid expansion. The strategy focused on opening only company-owned stores to maintain quality, although there were initial financial losses until the company became profitable in 1990. With steady growth in profits every year since, Starbucks carved out a significant place in the coffee industry, thriving through careful planning and strategic decisions.