Starbucks (WAC) Business Strategy Analysis. Project report

1

TABLE OF CONTENTS Sr. #

Description

Page #

1

Introduction

2

2

Mission Statement

3

3

Objective & Goals

6

4

PESTEL Analysis

7

5

Porter's Five Forces Model Industry Analysis

9

6

The Strategy Formulation Analytical Framework

7

Stage - I, The Input Stage

8

Stage - II, The Matching Stage

9

14

SWOT Analysis

17

SPACE Matrix

18

BCG & IE Matrix

20

Stage - III, The Decision Stage

22

SPACE Matrix QSPM 10

Value Chain

23

11

Recommendation

28

Business Strategy & Policy, Summer 2010.

2

Introduction Name

: Starbucks Corporation

Headquarters

: Seattle, Washington, U.S.

Revenue for 2003

: US$3.3 billion

CEO

: Howard Schultz (Founder of Starbucks coffeehouse)

Total Stores

: 5886

Company started

: In 1971 in Seattle, Washington

Positioning

: Starbucks positioning itself as a “third place”

Products sold include

:

- Beverages

- pastries

- Whole coffee beans - coffee-related retail items

Starbucks, the coffee production and serving company took its exceptional name from a character of the novel “Moby Dick” and have its roots in Seattle, Washington. Here you can still find the very first coffee shop at the pike place market, which has been opened since 1971. In 1987, Starbucks was bought by Howard Schultz and ever since has been exploring all over the United States. Today Starbucks is the most known chain of coffeehouses around the world. Starbucks is the largest coffeehouse company in the world, with 5,886 stores in 40 countries, including around 1312 in the United States. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks, and items such as mugs and coffee beans. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. Starbucks’ Italian style coffee, espresso beverages, teas, pastries and confections had made Starbucks one of the greatest retailing stories of recent history and world’s biggest specialty coffee chain.

Business Strategy & Policy, Summer 2010.

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Mission Statement Mission Statement: Not provided in Case study also not in website Mission Statement (Original) “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” The six principles are: 1. Profitability is essential to our future success. 2. Provide a great work environment and treat each other with respect and dignity. 3. Embrace diversity as an essential component in the way we do business. 4. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. 5. Develop enthusiastically satisfied customers all of the time 6. Contribute positively to our communities and our environment Analyzing the Mission Statement Component It is the analysis of mission statement of Starbucks in we examined the 9 elements rather they are or not in this company provided mission statement.

NO

COMPONENT

YES/NO

1.

Customers

Yes

2.

Products or services

Yes

3.

Markets

Yes

4.

Technology

No

Business Strategy & Policy, Summer 2010.

4 5.

Concern for survival, profitability and growth

Yes

6.

Philosophy

Yes

7.

Self-Concept

Yes

8.

Concern for public image

Yes

9.

Concern for employees

No

It is the good mission statement which provided by Starbucks but its have not described 2 components among 9 components of Mission statement those are Technology and Concern for employees. Company should must to discuss the technology factor in its mission statement to let know to its stake holders about its concern about technology and also about its employ those could be its competitive advantage by providing good services. Proposed Mission Statement “Establish Starbucks as the foremost provider of the deluxe coffee in the world and also to be established as the most employee appreciated company even as maintaining our uncompromising principles as we grow mutually with hi-tech advances.” The six principles are: 1. Provide a great work environment and treat each other with respect and dignity. 2. Embrace diversity as an essential component in the way we do business. 3. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. 4. Develop enthusiastically satisfied customers all of the time 5. Contribute positively to our communities and our environment 6. Recognize that profitability is essential to our future Business Strategy & Policy, Summer 2010.

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Objectives and Goals Objectives of Starbucks Most recognized and respected brand in the world: Company is having objective to establish Starbucks as the most recognized and respected brand in the world. Is to recognize that every dollar earned passes through employees’ hands Starbucks will always appreciate the employee as the revenue which is increasing every year is by the efficient and hardworking employees. This drastic increase in profit is not recognized without the support of the employees who attracts the customers to a long term relationships with the coffeehouse. Market expansion: Starbucks’ objective is to provide its services at the foot step to its valuable customers for this Starbucks developing its market expansion and going into new markets and cover the customers by lowering its price and providing good quality better then perception of its customers.

Operations to Achieve Objectives: For achieving its objectives Starbucks plans to continue to rapidly expending its retail operations. And grow its sales and other operations. CURRENT STRATEGIES USING ●

Market Penetration

●

ORGANIZATIONAL STRUCTURE N/A PESTTLE Business Strategy & Policy, Summer 2010.

Product Development

6

PESTEL Analysis Political: Globalization nowadays has changed worldwide trend of doing business. Companies find it difficult to stay alive by relying solely on home market. The borders between various countries are getting invisible. Companies are these days developing business in various countries without boundaries. Advertisements are all over the world for many products. Company strategists find it not an easy task to expand the business outside borders. The basic need for globalization is to learn the different cultures of the country they plan to start business. Taking all aspects including tax rates, law and legislation is important in globalization. But in the case of Starbucks did not discuss as such any political factors those can influence on Starbucks other then •

Allowance for the Direct Dealing with the growers after bypassing many of the middle market which is eventually be the point of exposure for Starbucks politically

Economical: People are these days looking for more earnings to continue their luxurious life. The number of two income households is getting increased all over the world. People are looking forward for products which reduce their time to be spent on. Improved customer service, immediate availability, trouble free operation of products is becoming more important. Since the world is facing crisis, people are looking forward for cheap and quality products. Price is becoming priority to customers but Starbucks having a threat from its competitors that they are providing low priced products and services then Starbucks which can make negative thing for Starbucks. Increase in the inflation rates and increase in unemployment is also a factor for demand in lower priced products. •

Unwillingness to help improve the economic condition of the coffee growers themselves by Starbucks

Business Strategy & Policy, Summer 2010.

7 •

250 Pre Harvest and 650 Post Harvest financing to the Coffee growers and farmers by the Starbucks in 2005 which more than 1.2 B Pounds

Social: •

Supporting Relief Organization such as CARE

•

Providing Direct Support to the farmer and farm community around the world

•

Contribute $43,000 in 2001 for construction of the Health Clinic and School in Guatemala

•

Providing the Varity if ways of improvement of Coffee Processing facilities in a number of countries in the world

Technological: Mass communication and high technology are creating patterns of various cultures worldwide. Ground-breaking technological changes and discoveries are having a dramatic impact on organization. Internet is the world information spread machines that have covered an interaction from one user to another user. In contrast, advertising through have brought high achievement into marketing strategy. Starbucks discusses technological us in this case study just about its one brand “shade Growth Mexico coffee’s” Online selling throw its website Starbucks.com but its not provided information about any other use of technology in this case study other then just about this one bran but Starbucks can take advantage of use of technology. Advancement of the technology can cause increased in the distributing of the products. High technology of the Machineries can increased the supply of the products while achieve a better profits for the Starbucks. Ecological: Cultivated under the Company of shade Trees in Organic product Legal: Business Strategy & Policy, Summer 2010.

8 N/A

PORTER FIVE FORCES INDUSTRY ANALYSIS Threat of new Entrant Determinants

Defining Question

Economies of

Does successful entry require that companies have significant economies of scale or experience

Scale and experience Brand Identity Product Differentiation

Switching Costs

Capital Required Access to Distribution Cost advantage

Government policies Expected Retaliation

•

Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesn’t apply to your industry. 1 2 3 4 5 N/A

Do new companies need to spend heavily on brand identification? Do new entrants need to differentiate by spending heavily on advertising, customer services or product differences to over come existing customer loyalty? Does the buyer have to pay to switch from one supplier product to another? Does the new company need to invest large financial resources? Does the new comer have access to distribution channel for product or services? Established companies have cost advantages over new rivals.

1

Government policies can help to preserve or limit competition. If industry leaders retaliate more for new entrants then threat for new entrants will be high.

1

Threat Of new Entrants:

Business Strategy & Policy, Summer 2010.

2

3

4

5

4

5

4

5

4

5

4

5

4

5

4

5

4

5

N/A 1

2

3 N/A

1

2

3 N/A

1

2

3 N/A

1

2

3 N/A

1

2

3 N/A

2

3 N/A

1

2

3 N/A

9 (Four 4’s, Two 2’s, One 3s, One 1’s, one 5’s) So the threat of new entrants is High

Intensity of Rivalry Determinants

Defining Question

Industry growth

How slowly or quickly is the industry growing? Intense fight among rivals for market share Does your business have a high fixed cost?

Fixed Cost Product Differentiation Switching Costs

Intermittent Overcapacity Brand Identity

Concentration and balance Diversity of competitors

•

Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesn’t apply to your industry. 1 2 3 4 5 N/A 1

2

3

4

5

Is your product commodity? The closer the product is to being a commodity the higher intensity of rivalry. How costly is it for your buyer to switch between providers? How frequently is there a problem of excess capacity in your industry?

1

2

N/A 3

4

5

4

5

4

5

Is branding critical for your Rival’s success? Brand identification by buyer reduces the threat of rivals.

1

4

5

Are there a large number of firms of equal size and power, all chasing after the same customer? Are there competitors with different strategies and frame of reference? When competitors are diverse it is more difficult to establish the rules of game

1

4

5

4

5

Intensity of Rivalry:

(Three N/A’s, Three 2’s, One 3’s) Business Strategy & Policy, Summer 2010.

N/A 1

2

3 N/A

1

2

3 N/A

2

3 N/A

2

3 N/A

1

2

3 N/A

10 The rivalry is very intense and Low to Moderate.

Bargaining power of Buyer Determinants

Defining Question

Concentration

Buyer is fragmented because to industry covers all Demographic segments.

Product Cost versus Total Purchases

Product Differentiation Switching Costs Profits

Integration Impact on Quality/ Performance Buyers Information

•

N/A

!Unexpected End of FormulaDoes your product buyer’s purchase represent a significant fraction of the buyer’s cost? If so, buyer bargaining power is typically high. Product is standard or undifferentiated bargaining power is high.

1

If buyers face few switching cost there bargaining power is high.

1

Profits with in the industry for buyers are if high then buyer’s power is high. Can they make what you make themselves?

Backward

Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesn’t apply to your industry. 1 2 3 4 5

1

4

5

2

3

4

5

4

5

N/A 2

3 N/A

1

2

3

4

5

N/A 1

2

3

4

5

4

5

4

5

N/A 1

Does the buyer have complete information on the product he may purchase?

1

(Four 4’s, One 1’s, Two2’s One 5’s) The bargaining power of the buyer is High Business Strategy & Policy, Summer 2010.

3 N/A

Is the product you offer important to the quality of the buyer’s product or services?

Bargaining Power of Buyer:

2

2

3 N/A

2

3 N/A

11

Bargaining power of Suppliers Determinants

Defining Question

Concentration

Are your supplier are

Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesn’t apply to your industry. 1

2

fragmented or highly Presences of

concentrated? Are there any substitutes for

Substitute

your supplier products?

inputs Product

Is the supplier’s product or

Differentiation

service commodity?

Switching Costs

How costly is it for you to

Is your industry an important

Relative to

customer the supplier group?

4

5

4

5

4

5

4

5

4

5

4

5

4

5

N/A 1

2

3 N/A

1

2

3 N/A

1

2

switch from suppliers product? Importance

3

3 N/A

1

2

3 N/A

Customer. Forward

Can the supplier produce the

Integration

product you make?

Impact on

Is your supplier product

Quality/

essential to the quality or

Performance

performance of your business?

•

Bargaining Power of Supplier:

(Three 4’s, Three 2’s, One 5,s) So the Supplier power is HIGH

Business Strategy & Policy, Summer 2010.

1

2

3 N/A

1

2

3 N/A

12

Threat of Substitute Determinants

Defining Question

Price

Does the substitute offer a

performance Switching Cost

better price performance? Is it costly for buyer to switch

Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesn’t apply to your industry. 1 2 3 4 5 1

2

to the substitute product?

•

N/A 3 4

5

N/A

Threat of Substitutes: (One 2’s One 3,s) So the threat of substitute is Low to Moderate

INDUSTRY COMMENTS: As there are three high forces and Two Low to Moderate force so the over all industry is very attractive and growth is expected to be there in the industry

The Strategy – Formulation Analytical Framework Business Strategy & Policy, Summer 2010.

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STAGE 1: THE INPUT STAGE

Company’s Strengths, Weaknesses, Opportunities & Threats Strengths:  Expansions in retail operations  Product Development  New distribution channels  Employees stock ownership plans  Market development  Perceive premium product  Product differentiation  Peaceful atmosphere (Especially service with music) 

Proper customer guidance by providing wide ray of coffee selection & 0pportunities.  Evaluation of companies business lines (Assembly of experienced professionals increasing growth)  Quality of service  Employees training benefits

Weaknesses:  Lack of employee compensations and benefits  Critical parking place at busy streets of North America  Sales saturation  Less spending on advertising  Employees overworked/under paid.  Decrease in sale of per store. Opportunities: Business Strategy & Policy, Summer 2010.

14  Direct relationships with coffee farmers  Providing ready access to consumer  Unroasted beans  Market Expansion (Pacific, Northwest & California, Boston, Washington)  International Expansion (more to Asia, Europe & Latin America)  Joint ventures (for achieving the target of more then 500 branches till 2003)  New product placement at existing coffee  Espresso bar Concept  Providing Organic products  Buying in long term contracts (By less spending on cost)  Coffee of the day (Fair Trade Coffee in North America) Threats:  Anti Globalization movements  Plummeting pressure of Coffee Prices  Labor & real estate prices  Imports & Brokers (Sale to mass Market)  Less profit from joint ventures  Cash out from the business  Substitutes  Misuses of brand names

Business Strategy & Policy, Summer 2010.

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STAGE 1: THE INPUT STAGE •

EXTERNAL FACTOR EVALUATION (EFE) MATRIX

•

COMPATITIVE PROFILE MATRIX (CPM)

N/A

We know that the Competitive Profile Matrix (CPM) constructed on the basis of critical success factor of the organization that give organization the competitive advantage against it competitors in sustaining market and getting profits. But in this, Starbucks, case no such information give about such critical success factors and the competitors of the Starbucks. That’s why, it is not possible to construct the Competitive Profile Matrix. •

INTERNAL FACTOR EVALUATION (IFE) MATRIX

•

FINANCIAL ANALYSIS In Excel Sheet

Business Strategy & Policy, Summer 2010.

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The Strategy – Formulation Analytical Framework STAGE 2: THE MATCHING STAGE

SWOT Analysis Strengths

Weaknesses

S1:Expension in retail operations S2:Product Development S3:New distribution channels S4:Employees stock ownership plans S5:Market development S6:Perceive premium product S7:Product Differentiation S8:Peaceful atmosphere (Specially service with music) S9: Proper customer guidance by Providing wide array of coffee selection. S10:Evaluation of companies business lines (Assembly of experience professionals increasing growth) S11:Quality of service S12:Employees training benefits

W1:compensations and benefits W2:Critical parking place at busy streets of North America W3:Sales saturation W4:Less spending on advertising W5: Employees overworked/ Under paid. W6: Decrease in sale of per store.

SO Strategy

Opportunities O1:Direct relationships with coffee farmers O2:Providing ready access to consumer O3:Unroasted beans O4:Market Expansion (Pacific, Northwest & California, Boston ,Washington) O5:International Expansion ( more to Asia, Europe & Latin America) O6:Joint ventures ( for achieving the target of more then500 branches till 2003) O7:New product placement at existing Coffee O8:Espresso Bar Concept O9:Providing Organic products O10:Buying in long term contracts (By less spending on cost) O11:Coffee of the day (Fair Trade Coffee in North America)

S 5 , S 7 & O 8: W 6 & O7 : Use espresso bar concept in world Can increase sale of per store by market which will ultimately placing out some new product at differentiate the product from existing coffee other coffee provider. S 11 , O 2 & O 9: We can create customer loyalty through adding benefit to the product. ST Strategy

Threats T1:Anti Globalize movements T2: Reducing pressure of Coffee Prices T3:Labour & real estate prices T4:Imports & Brokers ( Sale to mass Market) T5:Less profit from joint ventures T6:Cash out from the business T7:Substitutes T8:Missuse of brand names

WO Strategy

S4 & T8: Can avoid the misuse of brand

WT Strategy W4 & T1:

name by employee stock ownership plan( employee loyalty)

Business Strategy & Policy, Summer 2010.

by advertisement.

17

SPACE MATRIX

Internal strategic position

X-Axis

Y – Axis

Competitive analysis

External strategic position

Industry strength

-2 Product quality

+6 Profit potential

-3 Market capital share

+5 Growth potential

-4 Technological know how

+5 Financial stability

-2 Control over distributors

+5 Ease of entry into market

Average= -2.75

Average= 5.25

Financial Strengths

Environmental Stability

+4 Cash flow from operations

-4 Price range Competing Products

+5 Liquidity

-2 Barriers to entry

+5 Leverage

-2 Competitive pressure

+6 working Capital

-5 Barriers to Exit

+4 Cash Flow from Operation

-3 Risk involved in business

Average= 4.8

Average= -3.2

Total X-axis score= -2.75 + 5.25 =2.50

Total Y-axis score= +4.8 – 3. 2 = 1.6

SPACE MATRIX (Graphical Presentation) Business Strategy & Policy, Summer 2010.

18

The Space matrix results show Aggressive response of the company. In this position, the company has to adopt the following strategies. •

Backward, Forward & Horizontal Integration

• Market Development • Product Development • Market Penetration •

Diversification (Related or Unrelated)

Business Strategy & Policy, Summer 2010.

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STAGE 2: THE MATCHING STAGE •

B C G Matrix

N/A

BCG Matrix is also not applicable because the company’s portfolio’s share with respect to its competitor not available. •

INTERNAL EXTERNAL (IE) MATRIX The IFE total Weighted Scores

IFE

4.0 Strong (3.0-4.0) 3.0 Average (2.0-2.99) 2.0 High

Weak (1.0-1.99)

I

II

III

IV

V

VI

VII

VIII

IX

3.0_4.0

3.0

Medium EFE 2.0 _2.99

2.0 Low 1.0_1.99

1.0 •

IFE score 2.86

GROWTH AND BUILT Business Strategy & Policy, Summer 2010.

●

EFE score 3.09

1.0

20 •

Forward , backward, Horizontal integration

•

Product development

•

Market development

•

Market Penetration

•

GRAD STRATEGY MATRIX

N/A

Grand Chart matrix describes the company’s competitive position against its competitors and company’s market growth rate based on the results of Competitive Profile Matrix (CPM) and BCG Matrix. But in this case, both matrixes are not implementing due to non availability of sufficient information about the competitors as well as the company’s products portfolio. That’s why Grand Chart not constructed.

Business Strategy & Policy, Summer 2010.

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The Strategy – Formulation Analytical Framework STAGE 3: THE DECISION STAGE 1. POSSIBLE STRATEGIES (Strategies Selection Table) 2.

Excel Sheet

QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) Excel Sheet

Business Strategy & Policy, Summer 2010.

22

Value Chain of STARBUKS (Interlink Activities)

 Currently Adding Value represented by (+)  Loosing value represented by (-)  Potential to add value represented by (P+)

Primary Activities:  Inbound Logistics: •

Starbucks bypass the much of the middle market +

•

Starbucks Developed expertise and relationship with coffee growers themselves +

•

Taking out cost of its supply chain +

•

Joint venture with sazaby that had expertise in both retail and estate. +

•

Starbucks is giving direct support to the coffee growers. + Business Strategy & Policy, Summer 2010.

23 •

Company had purchased Peet’s Coffee and Tea, a Berkeley, California, Coffee

roaster and distributor, straining the company’s management and financial capabilities. + •

Company can pursue the opportunity of leverage the brand by introducing

new products and development of new distribution. (P+) •

The New York “C” coffee prices remained at near record lows, decreasing

sourcing costs and increasing gross operating margins. (P+)

Operations: •

Between 1995 and 1998 Starbucks had averaged $0.69 million per store. +

•

Company was continuing expand international operations at breakneck pace. +

Outbound Logistics: Additional to its retail stores: + 1. It sells through specialty sales groups 2. Direct response business 3. Supermarket 4. Online selling at starbucks.com

Marketing and Sales: •

Company is still spending less than $20 million per year on advertising.

•

Products type offering: +

•

Also sells bottled frappuccino coffee drinks & line of premium ice-cream through

P+

its joint venture partners. + •

Also offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea. +

•

$215 M profit on $3.29B sales in 2002 & expecting 25% growth in 2003. +

•

` New stores cannibalizing existing stores. (-)

• Too many number of stores did created barriers for the competitors + Business Strategy & Policy, Summer 2010.

24 •

But this huge number of store owing led to downward trend in sales per stores. (-)

•

Before entering in any new country, the company first takes a complete research +

•

“Commitment to Origins” company program. +

•

All the three coffees under “commitment to Origins” program was 20-25% more expensive compared to Starbuks traditional blends. +

•

Starbucks introduced Fair trade coffee in North American stores and promoted it through various brochures and promotions. +

•

Company can offer “Coffee of the day” per week rather than per month. P+

•

Corner locations, the hallmark of early growth store provided high visibility. +

•

It expanded all facets of the industry as distributed through traditional supermarket distribution systems. +

•

It has three-legged stool for global development which are retail coffee and assorted specialty items, specialty sales and Frappuccino coffee drinks and specialty coffee ice creams sold through retailer globally. +

•

It can enhance its marketing decide under the leadership of Howard Schultz. +

•

R&D for new markets in which it has to enter.+

Services: •

The perceived premium was both in the products’ quality and in the method of its delivery. +

•

Starbucks believe and actively giving superior services by giving the sense of discovery and excitement and loyalty that bend the customer to Starbucks. +

•

It had evolved into its own Americanized version of specialty coffee provider of coffee shop services. +

•

Special pastries and music provided an atmosphere of both warmth and comfort. +

•

Starbucks is providing ready access to consumer foot traffic such as commuting routes. +

•

Employees are trained to provide wide array of advice on coffee selection and appropriateness to potential customer. +

•

Internet Selling. +

Business Strategy & Policy, Summer 2010.

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Explanation: The company owns a good repute in the global market which gives it the best strength. The company owns 5700 total number of stores globally. As it works in with other business partners under the contract of joint venture, the number of total stores adds up to 5886 out of which 1312 is owned outside US market. The company offers a variety of products in different shapes and ways which are related to their core offering (coffee) to the customers. The company gives importance to its employees and it trains them for enhancing their performance. They consider their employees as their partners and offer them stocks to make them feel as they are the part of organization. This adds their morality in work. There is a big objection to the company that, it is not giving benefit to their employees who are over working and most of them are under paid. Due this objection the purpose of adding the benefit doesn’t support their strategy of retaining their employees. Stores are located in pivotal positions for consumer recognition and access. All stores were owned by the company in domestic market inside US market. This helped the company to increase its availability aspect in the eye of the customer. But unfortunately, this strategy wasn’t helping the company to increase the sales per store. Infect, the stores introduced was cannibalizing the sales of the existing stores. The company uses multiple channels for providing the product to the end customers. Starbucks is creating good relations with their suppliers. This helps the company to gain a good quality product on a low price as compared to the market rates. The company gives benefits to the as well so they can improve their economic stability.

Infrastructure: •

Starbucks used two basic structures for international expansion that were company owned and licensing agreements. +

Business Strategy & Policy, Summer 2010.

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Human resource management: •

Howard Schultz joined the company as member of marketing team. +

•

In decade of 1990s, Starbucks expand its talent pool on the most senior levels +

•

Starbucks is focusing on employee training. +

•

Company also giving health care benefits to the employees (more then 20 hour/week). +

•

First time Starbucks gave stock ownership to its employees. +

•

Starbucks bought all foreign managers to its Seattle offices for 13 day training. +

•

It can start employee benefits and motivation programs. P+

Business Strategy & Policy, Summer 2010.

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Recommendations Recommendations for Improvement: 1) Revamp the employee reward system 2) Tighten focus on creating the “Third Place” environment 3. Focus profitability measures on profitable sales, not just reduction in staffing 1) Revamp Employee Reward System:  Large percentage of the staff are under the age of twenty  Benefits package focuses on medical, dental, and vision care, as well as the employee stock options  Outside of hourly wage, and semiannual raises, there are few monetary rewards 2) Improve “Third Place” Environment  Site has a very high employee turnover rate  Manager “promoted” to a another store in hopes of improving their poor performance  Site has very poor handicapped accessibility  Condition of restroom in each of our visits was poor and had no baby changing area 3) Focus Profitability Measures on More Than Just Staffing:  Store is underperforming on some high margin product segments  Too high a focus on minimizing direct labor as a key to achieve profitability  Focus on high-margin items and profitable add-on sales  By increasing pastry sales by 33%, store would realize a $16K increase in contribution Action Plan For Improvement Business Strategy & Policy, Summer 2010.

28  Decrease employee turnover rate –

Focus on hiring older employees where benefits package is more appropriate

–

Base raises on performance rather than maximizing raises for economic reasons –

Develop and actively maintain a reward system for employees (i.e.

employee of the month) –

Develop a system of regular employee communications / meetings

 Improve site accessibility and cleanliness –

Upgrade front door and restrooms for handicapped accessibility

–

Add a baby changing station

–

Redesign restroom to separate cleaning supplies from bathroom or move cleaning supplies to another location

–

Focus employee attention on restroom cleanliness

 Enhance Starbuck’s differentiated atmosphere –

Utilize entertainment budget to hire outside entertainers, have book / poetry readings, etc.

–

Display the store’s collection of games and activities more prominently

–

Make the location more of a “scene” Impacts

 By focusing on the initial recruitment and hiring stage, and by rewarding employees based on merit current turnover rates will be reduced.  By focusing on site accessibility and cleanliness, the physical facility will not detract from atmosphere.  By improving Starbucks’ atmosphere, it will become a more attractive place to go. Potential Risks Business Strategy & Policy, Summer 2010.

29  Customers may not react positively to the changes being made  Not enough available employees to meet re-aligned hiring needs  Claims of age discrimination and negative affect on sales in youth demographic  Costs associated with planned change

Business Strategy & Policy, Summer 2010.