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StrategicReportforStarbucksCorporationHarknessConsultingInnovationthroughCollaborationHarryLeshnerCathrynCamachoScottDamassaApril14,2007TableofContentsExecutiveSummary………………………………………………..2CompanyHistory………………………………….………………..3CompetitiveAnalysis………………………………………………5InternalRivalry…………………………………………………………5Entry…………………………………………………………………………8SubstitutesandComplements………………………………………9SupplierPower…………………………………………………………10BuyerPower………………………………………………………………11SWOTAnalysis…………………………………………………….…11FinancialAnalysis…………………………………………….…….12StrategicIssuesandRecommendations…………….……..17Appendix………………………………………………………………20References………………………………………………………….…23HarknessConsulting1ExecutiveSummaryStarbucks Corporation, formed in 1985, is a leading specialty coffee retailer and one of the best known brands todayi. In addition to its sale of high‐quality coffees, Starbucks retail stores also offer Italian‐style espresso beverages, cold blended beverages, complementary food items, coffee‐related accessories and equipment, premium teas, and a line of compact discs. Outside of its company‐operated retail stores, Starbucks also sells packaged coffee and tea products, ready‐to‐drink beverages including its bottled Frappuccino® beverages and Starbucks DoubleShot® espresso drinks, ice creams, and other products mainly through licensing relationships. The company’s brand portfolio includes Tazo® teas, Starbucks Hear Music® compact discs, Seattle’s Best Coffee®, and Torrefazione Italia® coffee. Throughout its history, Starbucks has been known for its aggressive store expansion, as it seemed impossible to open new stores quickly enough to keep up with demand. However, since its stock falling from about $80 per share near the end of 2006 to its current price of about $18 per shareii, along with a dramatic decline in the growth of its same‐store sales last quarteriii, it seems that Starbucks may have run out of growth opportunities. Furthermore, as other specialty coffee retailers such as Peet’s Coffee and Tea and Caribou Coffee have entered the market, and as competition from fast food chains such as Dunkin’ Donuts and McDonald’s has increased, Starbucks has lost market share. Therefore, it may appear that the company is in decline. Despite these conditions, Starbucks remains the strongest company in the industry and it has many opportunities to increase its profits. The major issues facing the company include maintaining the Starbucks Experience for customers, store expansion and real estate issues, competition from fast‐food chains and other specialty coffee retailers, specialty operations, generating more demand and penetrating new markets, and lowering input costs. Since the return of Howard Schultz in January 2008, much has been done that addresses the first three issues mentioned. The analysis in this report will help reaffirm those initiatives as well as discover others that address the last three issues and will enhance the company’s performance. HarknessConsulting2Starbucks must seek more licensing relationships that will increase revenues from specialty operations at little cost, and also expose the brand. Existing retail stores must attract more customers and increase sales, especially after the morning rush hours, and can do so by expanding non‐coffee beverage options. Finally, the company will drastically reduce its input costs by abandoning purchases of Fair Trade CertifiedTM coffee, which can be accomplished without drawing negative attention to the brand. CompanyHistory Starbucks began as a whole bean coffee seller in Seattle, Washington at Pikes Place in 1971iv. The original location’s name was “Starbucks Coffee, Tea, and Spices,” This caused some confusion and was later shortened to the “Starbucks Coffee Company.” The name Starbucks comes from the first mate in the Moby Dick book by Herman Melville. Since its inception, the company’s goal has been to find the premier coffee in the world and present it to people who would otherwise not be exposed to it. In 1982 Starbucks acquired the services of Howard Schultz as the director of retail operations and marketing and the company began to expand its businesses by providing coffee to fine restaurants and espresso barsv. Starbucks put an emphasis on freshness during this time and would replace coffee it deemed not to be fresh, and thus unfit for consumption, for free so that customers received only the best coffee at these restaurants. A major shift in the Starbucks business plan occurred in 1983 when Schultz traveled to Italy and noticed the popularity of espresso bars in Milan. This gave him the idea that this would work in the United States, and Starbucks began testing this concept in 1985, successfully. In 1985, Schultz founded Il Giornalevi, which offered brewed Starbucks products in his Milan espresso bar replicas. Il Giornale succeeded and in 1987 Schultz secured the backing of local investors and acquired Starbucks Assets and changed the name to “Starbucks