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IIBMS – Starbucks

CASE: I    Starbucks


IIBMS – Starbucks 

In 2003, Starbucks accomplished something that few companies ever do: It became a Fortune 500 company—a phenomenal achievement for a company that went public only 12 years earlier. The company had over 6,000 stores worldwide—all company owned, as Starbucks does not franchise its outlets—and planned to expand rapidly to over 10,000 stores.

            Starbucks created not only a successful business but a thriving industry. When the company started its massive expansion in the early 1990s, the United States had about 200 coffeehouses. In 2003 there were over 14000 coffeehouses, the majority of them not Starbucks but mom-and –pops that bloomed after the dawn of the $3 cup of coffee. According to a Starbucks executive, “We changed the way people live their lives, what they do when they get up in the morning, how they reward themselves, and where they meet. That’s more important to me than just building a company.”

            More than 10 million coffee lovers spend an average of $3.60 at Starbucks weekly, and 10 percent of them come in twice a day. Starbucks has 7 percent of the U.S. coffee-drinking market and less than 1 percent abroad, suggesting ample room for growth. The coffee market is huge; coffee is the second most consumed drink in the world (water is first).

            Starbucks’ iced beverages, which offer larger profit margins than regular drip coffee, are big sellers in the South and Southwest. After making some adjustments, such as adding outdoor seating and couches to stores to better serve the needs of its customers, Atlanta locations have shown double-digit sales growth. Atlanta boasts 33 successful Starbucks, and plans for expansion are in the works. Plans for further expansion in cities with even more Starbucks stores, such as New York City and San Francisco, are also on the drawing board. Although 70 stores operate in New York City alone, it is estimated that growth there will continue until 200 stores are operating in the city! As for fears of market saturation, Starbucks has none. In fact, the java giant has two highly profitable outlets that face each other on Robson Street in Vancouver, British Columbia. Each store has more than $1 million in annual sales. International expansion is also taking place. In fact, the number one Starbucks in the world is located in Tokyo, and a total of 500 stores are slated to be operational in Asia in the next three years.

            What is the secret of Starbucks’ phenomenal success? According to Howard Schultz, chairman and CEO of Starbucks Corporation, the company’s success is due to the experience created within the stores as well as the unsurpassed quality of the coffee. A steaming café au lait must be perfectly replicated, whether the store is in Seattle or New York City. In a world filled with people leading busy, stressful lives, Schultz believes he has created a “third place” between home and work where people can go to get their own personal time out or to relax with friends.

            Schultz also attributes his company’s success to the 40,000 employees working worldwide. Starbucks’ employee training program churns out “baristas” by educating 300 to 400 new hires per month in classes such as “Brewing the Perfect Cup at Home” and “Coffee Knowledge.” Here they are taught to remind customers to purchase new beans weekly and that tap water might not be sufficient when brewing the perfect cup of coffee. They are also encouraged to share their feelings about coffee, selling, and working for Starbucks. Employees are also given guidelines to maintain and enhance self-esteem, to learn how to listen and acknowledge, and to know when to ask for help. E-mail, suggestion cards, and regular forms allow unsatisfied workers to communicate with headquarters. If the annual barista turnover of 60 percent, compared with 140 percent for hourly workers in the fast-food industry, is any indication of quality of its training programs, Starbucks seems to have a handle on how to gain and maintain employee loyalty. What about the demographic makeup of the work force? About 80 percent of the employees are white, 85 percent have some education beyond high school, and the average is 26.

            The Starbucks success story is continuing into the 21st century as the company is quickly expanding into Europe and Asia. However, one question remains regarding the success of the company in countries already known for their coffee-making expertise: Will such Romans and Parisians care for Starbucks? Continued expansion and visibility has been created domestically as Starbucks has formed partnerships with companies such as United Airlines and Barnes & Noble Booksellers, both of which draw form the same type of knowledgeable customer.

            More recently, Starbucks has opened several full-service dining establishments (Café Starbucks) in response to customers who want more at lunch and dinner. The menu offers full meals, breads, pastries, alcohol, and of course coffee. The company has also launched an Internet site that sells not only expensive coffee but also pricy kitchenware, home furnishings, and gourmet food. After some skepticism by analysts and a subsequent drop in share price, Schultz emphasized that “Every company must stick to its knitting, understand its core competency, know what the value proposition is for the customer, and do everything possible to get close to the customer. So you won’t see us getting far afield from what we do now” As for the present, Starbucks is not likely to fall victim to a fad-driven society any time soon. The company seems to be doing fine.

            You can learn more about Starbucks at


  1. Based on the case information and your personal experiences, list at least five things you know about Starbucks. This list offers you some idea about your cognitions concerning the coffee shop chain.
  2. List at least things you like or dislike about Starbucks. This list gives you some idea of your affect for the coffee shops.
  3. List at least five behaviors involved in buying a gourmet coffee drink from Starbucks. This list gives you an idea of the behaviors involved in a coffee purchase.

IIBMS – Starbucks

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