Starbucks a Crack in the Ol' Mug

As Starbucks’ share prices and revenue declines, Howard Schultz, the new Starbucks CEO, is attempting to resolve these difficulties by proposing a new strategy. His current strategy focuses on reducing store numbers in North America and improving the customers’ Starbucks experience in an assortment of ways.

Starbucks was founded in Seattle in 1971 as a coffee bean marketer and shortly after they expanded to restaurants and coffee bars. Starbucks went public in 1992 and had impressive expansion for the next 20 years. In 2008, the company had 4,588 overseas stores with the largest number (748) in Japan. From 2001 to 2008 net income increased three times and Starbucks became the leader in specialty coffee-drink market operating more than 15,700 outlets in 37 countries.

The company’s objective is to be an industry leader with continued growth that is focused on exceptional customer experience. Long-term objectives include operating over 40,000 outlets worldwide.

Five alternatives were considered as solution to this problem: 1) Product development and Improvement to Customer Experience 2) Hiring additional sales staff and expand the size of stores 3) Increase Revenue from Franchises 4) Diversification 5) Elimination of underperforming stores.

It’s recommended that Starbucks increases its revenue through more sales to its franchises and through diversification to emerging nations such as India, China and Brazil. Additional franchise sales are important because 15% of the total revenue is generated from franchises, a concerning figure because franchises constitute 43.34% of the total Starbucks stores.US markets are heavily saturated leading to very low levels of expected growth. This will result in more store closures.

Increasing sales to the franchises should be the short-term focus when implementing these new strategies. Thus Starbucks should review franchise contracts to identify further sales opportunities. It should then consult legal counsel, amend the contracts and push the strategy through. In the long-term, Starbucks should focus on improving sales in developing nations as well as extending product lines to provide more assortments. The variety would help cater toward cultural preferences. Also, closing unprofitable stores and improving overall customer experience should be the priority for Starbucks.

Problem Identification:

Starbucks is looking for sustainable sales growth to satisfy shareholders and market expectations. In recent years, Starbucks has seen a dramatic fall in share price and needs to determine the appropriate growth path to restore investor confidence.

Situation Analysis:

Background:

Starbucks operates more than 15,700 outlets including 4,588 overseas, consisting of both company