strategic-management

13
Starbucks Corporation — 2009
Sharynn Tomlin
Angelo State University
SBUX
www.starbucks.com
You can now wake up to smell the $4.00 per cup coffee at Starbucks. But McDonald’s is
now running an ad saying, “$4.00 coffee is dumb” as the firm attacks Starbucks around the
world with its $1.00 (and less) coffee. Starbucks needs a clear strategic to offset the new
attacks of McDonald’s that are trying to attract all Starbucks’ customers.
In July 2009, Starbucks began grinding coffee each time a new pot is brewed, instead
of grinding coffee only in the morning. Starbucks wants customers to smell coffee aroma
all day long. This change is part of the company’s effort to reinvigorate the “Starbucks experience”
in the face of heavy competition from McDonald’s, 7-Eleven, and Dunkin’ Donuts.
On June 15, 2009, 7-Eleven began rolling out iced coffee at its 5,000 self-service beverage
counters across the United States. Iced coffee has become a very popular drink in the United
States, especially among women and teenage girls. Iced coffee is clearly a female drink
according to many analysts, perhaps because it is low calorie and high caffeine. To capitalize
on this trend, Starbucks sold a 16-ounce iced coffee for $1.95 for the first half of 2009.
For the third quarter of 2009, Starbucks reported earnings of $151.5 million compared
to a loss of $6.7 million the prior year. Howard Schultz, Starbucks’s CEO, says the
media exposure concerning McDonald’s versus Starbucks coffee products actually helped
his firm by creating “unprecedented awareness for the coffee category overall.”
History
Starbucks was founded in 1971 by Gordon Bowker, Jerry Baldwin, and Zev Siegl, who
joined forces to open a coffee shop in Seattle, Washington. By 1972, with the success of
the first store, they opened a second store in University Village, Washington. Its wholesale
business, which sold coffee primarily to local restaurants, changed its name to Caravali out
of concern that the Starbucks’ name would become tarnished by retailers who sold the coffee
after its shelf life has expired. In the next 10 years, the business expanded to five stores
and hired Howard Schultz to manage retail sales and marketing.
By 1993 the company ventured into the East Coast market in Washington, D.C., and
entered into a venture with Barnes & Noble to sell its coffee at the bookseller’s stores. At
this point, the company had licensed 12 stores and was operating 260 company-owned
facilities with revenues reaching $176.5 million and net earnings at $8.3 million.
Starbucks opened 200 new stores outside of the United States during 2000, 150 of
which were in the Asia-Pacific region, and opened its first stores in Dubai and Hong Kong,
and its 100th stores in both Japan and the United Kingdom. The following year, Starbucks
opened a store in Zurich, Switzerland, marking its first venture into continental Europe.
Starbucks experienced its first setback in 2002 when its Japanese operation posted
a $3.9 million loss, despite a 15 percent increase in revenues and 108 new store openings,
and the first low performance locations were closed. But not discouraged by this,
international expansion continued as Starbucks opened its first store in Turkey and
acquired 129 Seattle’s Best Coffee coffeehouses, as well as certain wholesale distribution
rights. In the following two years, its long-term U.S. expansion goal was set at 50
percent and Starbucks announced it will eventually open 15,000 domestic outlets, and