Starbucks Coffee Essay Example for Free

Starbucks Coffee Essay I. Strategic Problem: How can Starbucks Coffee Corporation continue to provide exceptional employee benefits package while pursuing a globalization strategy? II. Analysis of the Problem: A. Company Background and History: 1. Founders. a. Starbucks began in 1971 when three scholars-English teacher Jerry Baldwin-history teacher Zev Siegel, and writer Gordon Bowker- opened a store called Starbucks Coffee, Tea and Spice in the touristy Pikes Place Market in Seattle. b. The inspiration and mentor for the Starbucks venture in Seattle was a Dutch immigrant named Alfred Peet, who had opened Peets Coffee and Tea, in Berkeley, California, in 1966. c. Starbucks Coffee at this time stood for making top-quality, fresh-roasted, whole-bean coffee which was its differentiating feature. d. The company was created to build clientele in Seattle that would appreciate the best coffees and teas. e. Baldwin and Bowker key mission for their business was to maximize the quality of the coffee. The company purchased the finest Arabica coffees and put them through a meticulous dark-roasting process to bring out their full flavors. f. In 2000, Howard Schultz transitions from chairman and CEO chief global strategist; Orrin Smith is promoted to president and CEO. 2. Starbucks and Howard Schultz. a. In September 1992, Howard Schultz was hired at Starbucks. b. Schultzs 1983 trip showed him that there was much more to the coffee business than just providing quality beans. On his trip to Milan, Italy he had a revelation which made him see going to Starbucks should be an experience, a special treat, a place to meet friends and visit. c. Howard Schultz presented his great idea to expand Starbucks to a retail business. They feared that providing drinks would hurt them because it could hurt the integrity of Starbucks mission as a purveyor of fine coffees. d. In April 1984 , Starbucks opened its sixth store which was the first of the companys stores designed to sell beverages, and it was the first one located in downtown Seattle. The sixth store did well with the espresso bars but Baldwin felt that they were coffee roasters and their debt was too high to divest into the restaurant business. e. Schultz left Starbucks left in 1985 to start his own company. f. In March 1987, Howard Schultz, president and CEO, took Il Giornale Coffee Company to form Starbucks Corporation. B. Overview of Retail Industry 1. Financial Situation and Performance. a. Starbucks goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest coffee and related products, and by providing superior customer service. b. Company-operated retail stores accounted for approximately 85% of net revenues during fiscal 2003. c. Specialty Operations accounted for approximately 15% of net revenues in fiscal 2003. d. Starbucks went public on June 26, 1992 at $17 per share, or a split adjusted price of $1. 0625 for the companys four subsequent 2-for-1 stock splits (wwww. starbuckscoffee. com). e. Comparing Starbucks financial ratios to that of the Industry can give us a general perspective of Starbucks financial strength. This could also give some indication of stock price performance. Most of Starbucks ratios are in line with the industry average, but there are a few that could explain the poor stock performance recently experienced. Starbucks price to earnings ratio is well above the industry average, but this could be due to its relative high growth it has experienced. Return on equity is well below the average for the industry, and this could be an area of concern. This suggests that the investment made by shareholders in the firm has not produced a decent return when compared to the industry average. Starbucks gross margin is also below the average for the industry, suggesting that it is not able to cover its operating expenses as well as other firms in the industry. C. Management Practices and Philosophies 1. Howard Schultz and Benefit Program a. Schultz wanted to build a company that really valued their employees and would gain from their contribution towards the company b. In late 1988 part-timers working 20 or more hours were offered the same health coverage as full-time workers. c. Starbucks paid 75 percent of an employees health care premium; the employee paid 25 percent. Starbucks extended its health coverage to include preventive care, crisis counseling, dental care, eye care, mental health, and chemical dependency. d. In 1995, Starbucks implemented an employee stock purchase plan. e. Schultz believed that if you treat your employees well, that is how they will treat your customers. 2. Workplace Environment a. Store employees were paid around $9-$12 an hour. b. The turnover rates for Starbucks baristas ran about 65 percent. c. Starbucks turnover for store managers was about 25 percent. d. Schultzs approach to offering employees good compensation and a comprehensive benefits package was driven by his belief that sharing the companys success with the people who made it happen helped everyone think and act like an owner, build positive long-term relationships with customers, and do things in an efficient way. D. Products and Services 1. Customer Service a. Employees were trained to go out of their way, and to take heroic measures if necessary, to go out of their way, and to take heroic measures if necessary to make sure customer were full satisfied. b. The theme was Just say yes to customer requests. Baristas made sure that customers got what they wanted. Shultzs rationale was that if you treat your employees well, that is how they will treat customers. 2. International Expansion a. Starbucks created a new subsidiary, Starbucks Coffee International, to orchestrate overseas expansion and begin to build the Starbucks brand name globally via licensees. b. Starbucks Coffee International division was only marginally profitable, with 2003 pretax earnings of only $5. 5 million on sales of $603 million. c. International journey began in 1966 when the first Coffeehouse in Tokyo opened. d. Starbucks Coffee has existing partnerships with 38 countries abroad. There are more than 1500 coffeehouses in 31 markets outside North America. 3. Local Stores. a. The company sites location track record was so good that as of 1997 it had closed only 2 of the 1,500 sites it had opened; its track record in finding successful store locations was still intact as of 2003. 4. Product line at Starbucks a. Starbucks CDs, initially created from the Capitol Records library, initially created from the Capitol Records library, provided a significant seller and addition to the product line. b. In the fall of 2003 Starbucks, in partnership with Bank One, introduced the Duetto Visa card, which added Visa card functionality to the reloadable Starbucks card E. Competition 1. Competition. i)Their competitors are not a threat because their market share is doing extremely well. III. Situational Analysis: A. Strengths, Weakenesses, Opportunites, and Threats: a. Starbucks, like many other companies had some strengths and weaknesses. One of the best strengths that a company can have is a CEO who is not afraid to take a chance and try knew things. Before Shultz came over to Starbucks the company did not have any plans of major growth or product expansion. Companies should always have knowledge of what they are selling and that is what Starbucks did. They knew everything that there was to know about coffee and if they didnt they would find out. Starbucks always prepared all of their managers and employees by sending them to training seminars and classes to learn how to roast the perfect bean, brew the perfect cup and how to serve each customer correctly. Starbucks believed in quality of its products and the character and location of its stores. b. Companies all have strengths, but they also have weaknesses to. Weaknesses were very easy to see when the company was first put together. Baldwin and Bowker were very narrow-minded and had no desire to expand the company very far. The two were also afraid to try knew things such as starting an Espresso bar and a sit in area where people can sit around, talk and make new friends. Though after Shultz took over the company, it seemed as though the weaknesses started to dissolve and the opportunities began to grow. c. Shultz took advantage of the opportunity to expand the company into new areas and markets. Entering new markets brought forward the idea of creating new product lines. d. They started by selling bakery good at the espresso bars and along with selling their beans, they began to sell their Starbucks Barista home espresso machine. Opening the Espresso bar also enabled them to see the CDs that the company played while customers sat and drank. Partnering with Dreyers and Pepsi enabled Starbucks to put their name on ice cream products and the cold beverage market by creating the bottled Frappuccino. This enables the company to earn an additional profit. e. Expanding too fast is one of the most important threats that Starbucks may encounter. Opening all these new stores at such a drastic rate can cause the company to endure major debt. Debt can cause a series of chain reactions leading to lower wages, cutting benefits, closing stores and laying off workers. These are not major threats now, but at an uncontrollable rate, this is one of the main threats that can really affect the future of Starbucks Coffee. IV. Strategic Alternatives: a. Class or program that breaks down the Starbucks Coffee lingo b. Diversity Training programs c. Discontinue joint ventures. d. More Opportunity for Community Involvement Initiatives e. Reconsidering Store Placement V. Evaluation of Alternatives: A. A lot of the customers do not understand the names of the Italian drinks, names of cups, and origin of coffee beans so this class would be give the baristas drink makers an opportunity to learn how to explain the language of the company better. The directors of the board will probably not be content with this idea because it would add an extra expense to implement the program but it would benefit the employee and the customer in the long run. B. Starbucks is all about embracing diversity so this program would encourage exposure to other cultures and an opportunity to learn from others in order to broaden horizons. Starbucks tries to hire all different races so that it will create an eclectic atmosphere in each of its stores. C. Joint ventures can hurt the company imagine because less regulation of your product/service will possibly ruin your image with your shareholders and customers. D. Although, community involvement is encouraged at Starbucks it is not required. They should implement a program that lets all the partners get together once a month and go out and possibly clean up a park in the local community, for example. As a partner, I feel that this program will give each partner an opportunity to get closer to their fellow co-workers as well as making a difference in the community. Not all partners will be excited about spending time with others because they might have other plans or just like to go to work and not spending quality time outside the store. E. They need to reanalyze the density of each store in order to make sure that the closeness of the stores is not taking away from the profit of the other stores. Having more stores means more overhead cost being used because you need to supply each store with all the products. Spread out the stores so that they are not competing with each other, so that will adhere more profit. More store location could possibly mean more revenue coming into the company and the cost of invested into the store will be obtained in a small time frame so it would not be a loss. VI. Recommendations: ?In order for Starbucks Coffee Company to continue its success it must find more innovative ways to provide superior customer service. Starbucks Coffee is known for its exceptional service provided by its baristas. The baristas are content when they are continued to be given a benefit package. Although the benefit package is quite nice, Starbucks needs to find different ways to continue to motivate its employees and the incentives will vary depending on location. Although monetary incentives are a big plus they only motivate employees for so long. Employees enjoy awards that recognize their exceptional contribution, gift certificates, and feeling part of a team that becomes their family away from home. VII. Operational Problems and Recommendations: 1)A lot of the customers complain in the price of the products and drinks. Most of the pricing of the products depends on how the economy is doing. Recently, last year there was a . 10 cent increase due to increase in milk and price of coffee beans. The company had to raise their price in drinks in order to compensate the increase in price of their products. 2)The company should change advertising channels. Most of the companys advertisement is by word of mouth because customers are very content with the product or service. VIII. Conclusion: Currently Starbucks Coffee Corporation is a public company that has been highly profitable while maintaining international market share. As growth both domestically and globally are undertaken the companys image will continue to flourish. The company needs to be aware that as it grows domestically and internationally it takes on more responsibilities. The benefit package it offers to its employees is quite remarkable but at the same time be aware that each county has different political and cultural barriers. As the company keeps expanding, it will need to take several precautions that will prepare them for any financial scares.