.. Such prospects included New World Coffee, Coffee People, Coffee Station, Java Centrale, and Caribou Coffee. Many observers expected these chains to merge to better validate themselves as an alternative to Starbucks. New World in particular is making a concerted effort to compete with Starbucks. In August of 1998 New World purchased Manhattan Bagel Inc.
Currently New World not only sells coffee but also is the second largest Bagel retailer in the United States. Also New World Coffee purchased Chesapeake Bagel Bakery. New World’s identity is a franchise that sells specialty coffee and bagels. At the end of 1998 New World had franchised, licensed, or owned 335 stores in 18 states, Washington, DC and internationally. New World is growing very rapidly.
On Aug 12, 1999 New World reported a %668 increase in second quarter earnings. V. Alternative Solutions There are three basic strategies Starbucks could implement to improve there position as the leader in specialty coffee sales. The first is a pricing and/or promotion campaign. For years, Starbucks has relied on word of mouth to build their customer base. But with such an aggressive expansion track, Starbucks could benefit from some instant exposure to introduce themselves to those in new areas that have not heard of Starbucks.
While this is a viable alternative, it is not the one of choice. Starbucks has a history of creating a clientele rather than advertising for one. Temporary pricing promotions seem to contradict the lifestyle choice of Starbucks customers. Starbucks coffee is a quality product offered at a higher price for customers who appreciate it and can afford it. Another direction the company could go would be to cut expansion and decrease the channels of distribution of their products. Starbucks has expanded at a torrid pace of more than a store a day in 19xx. Each new store costs the company $315,000 to build.
Starbucks is moving fast into many different areas of distribution as well. Their coffee is now being sold in grocery stores and even on the Web. Starbucks runs the risk of over exposing itself to the public, and with so many different channels of distribution, may even curtail customer traffic in their own stores. However, long term debt for the company has been more than held in check. Starbucks owes less than #### in long term debt and of the 1500 new stores opened in 1997, only two have since been closed down. And in 1997 new stores generated an average of $700,000 in sales compared with new stores in 1992 at $427,000. Starbucks should cut back on some of the products they offer, especially on their Web site.
The only tie-in these products have with Starbucks is their high price. Starbucks has taken some criticism for over-saturating the market with their coffee, but putting an end to expansion because a few numbers have slipped is not the answer. Slowing expansion, rather than stopping it, seems to be a better strategy. Concentrating on existing stores to fend off possible competition from other firms is the best choice for the company. Starbucks must be sure that the current level of management is capable of being stretched even thinner before it should think about further expansion. For years Starbucks has stressed quality and has carefully trained its employees and managers in the art of brewing a better cup of coffee.
In the past, techniques were studied and a great importance was given to understanding the process involved in giving the customer what he or she wants. New stores will have employees that may be rushed into service and the culture of Starbucks cannot be force-fed. The competition with Starbucks for specialty coffee sales is increasing. Its nearest competitor has only a fourth of the stores Starbucks has, but the overall increase is significant. The number of coffee cafes in the United States has risen from 500 in 1992 to a predicted 10,000 by the end of this year.
Starbucks may have gotten off track a little bit with an overzealous lust for expanding too fast into every market. Easing off expansion while concentrating on their core competencies should ultimately enable Starbucks to reach its goals of serving quality coffee in over ten thousand stores worldwide. VI. Answers to Questions 1.) Howard Schultz is a CEO with a vision. He want’s Starbucks to be the most recognized and respected brand of coffee in the world.
He believes in creating a Starbucks lifestyle by selling various items over the Internet. He want’s Starbucks stores all over the world, and continues expanding Starbucks internationally. Howard Schultz is fixed on creating an environment to completely satisfy customers, while maintaining a positive workplace for employees. He also pursues the profitability of Starbucks, to ensure future business success. As compared to Al Dunlop, Al also had a vision but it was more short term oriented. Al’s vision was to rebuild Sunbeam and make it a profitable business, and maximize shareholder wealth.
2.) The key elements of Starbucks strategy is to expand Starbucks globally, and to further develop its Internet business. The Strategy has changed over time as the business has grown exceptionally well in North America, and now they want to take that success over seas. At first the strategy was to create a pleasing atmosphere for customers as well as employees, and to build the Starbucks brand. The strategy has worked; proof to that would be the exceptional growth the company has experienced. 3.) The management of Starbucks communicated the strategy and strategic changes to the members of the company by allowing them to feel as if they are an important part of the business. Employees receive extensive training, and are encouraged to help Starbucks become a better company.
Management has created a workplace where the employee can speak his mind without the fear of any retribution. Employees can discuss issues with management vocally or through the use of comment cards. Management strives to instill a guideline of values and principals (developed by management and employees) on how to completely satisfy customers. They have done a good job as Starbucks continues to be a successful company maintaining customer satisfaction and providing a good working environment. 4.) Starbucks has had great financial performance from 1992 to 1998. Revenues along with earnings have increased dramatically.
The Strategy has worked well for Starbucks, they have had strong financial performance, and they still continue to grow. 5.) Howard Schultz should continue to expand the Starbucks brand internationally, focusing on the Asia Pacific region. There he has the greatest potential in being successful. As far as expanding into Europe, he should take his time developing a solid plan before trying to compete with local coffee bars. Starbucks will probably receive the most resistance here.
Schultz may have gone to far by trying to create a lifestyle easily purchased off the Internet, and should focus on selling coffee related products. Part of the drop in stock price in July was due to the Internet business as investors felt it would not be successful. Schultz should use the Starbucks brand to sell coffee, not home furnishings. Business Essays.