Starbucks and Mcdonald's

Starbucks and McDonald’s Background Corporation ◼ Howard Shultz, Chairman & Original CEO ◼ 1982, Began career with Starbucks Coffee Company ◼ 1983, Inspired by coffee bars in Milan while on a buying trip to Italy ◼ Proposed idea of expansion into a coffee bar ◼ Board of directors rejected his idea ◼ 1985, Created his own coffee bar company “Il Giornale” ◼ 1987, After 2 years of success, Il Giornale purchases the Starbucks name and assets ◼ Changed the name of its retail outlets to Starbucks Background Demographics ◼ 2nd most traded commodity next to oil ◼ Specialty coffee made up 31% of total coffee consumption ◼ 22% of U.S. coffee population purchased specialty coffee ◼ Single people purchased 39% more than average consumer ◼ College students purchased 49% more than average consumer Background Specialty Coffee ◼ Specialty coffee originated from Arabica beans ◼ Premium prices demanded for Arabica beans because of quality ◼ Exact price of a certain coffee depended on quality and quantity available at a particular time ◼ Starbucks sourced 50% of its beans from Latin America, 35% from the Pacific Rim, and 15% from East Africa ◼ Starbucks used proprietary computer software to patent their unique roasting process Strategy Description •Become leading specialty coffee A memorable experience retailer in the worldwide •Provide superior customer service Sell the finest quality coffee and GOALS • related products VALUE PRODUCT MARKET PROPOSITION CORE FOCUS ACTIVITIES •Continental North America •Retail operations •Europe • Sourcing Beans •Asia Pacific •Roasting Technology •Middle East •Joint Ventures •Australia SWOT Analysis Strengths Strong brand equity Good platform for product innovations Logistics and manufacturing organization High quality coffee Real-estate approach to Locations Flat organizational structure SWOT Analysis Weakness Need for more high quality suppliers Labour intensive retail Difficult for its real estate staff to generate 20 to 40 stores per month Needs more Internal financing to roll out stores (no franchising) SWOT Analysis Opportunities ◼ Growth in domestic and international retail markets ◼ New specialty sales partners ◼ Penetration in the grocery channel ◼ online mail order business. SWOT Analysis Threats Product-based competition Retail-based competition Real Estate costs and competition for store location Prices and availabilities of raw materials (Beans) PEST Analysis MACRO FORCES Political Economic Social Technological MICRO FORCES Supply Competition Demand PEST Analysis MACRO FORCES Political •Most countries regulate coffee sales •Licenses for businesses are regulated PEST Analysis MACRO FORCES Political Economic •Coffee=the 2nd most traded commodity •Very difficult to get price confirmations •Volatile Supply PEST Analysis MACRO FORCES Political Economic Social -Rise in popularity due to 4 consumer trends: -adopting healthier lifestyle by replacing alcohol with coffee -coffee bars offered a place where people could meet - demand for affordable luxuries -consumers were becoming more knowledgeable about coffee PEST Analysis MACRO FORCES Political Economic Social Technological • Computerized roasters • Roasting and blending process PEST Analysis Political Economic Social Technological MICRO FORCES --Supply could be affected by nature (weather conditions, disease and infection caused by insects) - Varying quality of bean supply - Many buyers of beans Supply PEST Analysis Political Economic Social Technological •-The rising trend of specialty coffee has different coffeehouses and grocery chains competing for market share •-Tea, juices, soft drinks, alcohol and non-coffee related MICRO FORCES drinks •-More than 3,485 competitors in the market Supply Competition PEST Analysis Political Economic Social Technological The specialty coffee industry is growing by 15% per year MICRO FORCES Supply Competition Demand Diamond E Framework • Aggressive • Entrepreneurial Management • Risk taking Preferences • Need to Satisfy Shareholders • Flat Organization •Employee Focused Organization Strategy Environment • Changing Demographic • Shift to specialty coffees • Brand Equity • Differentiated product • cafes and coffee bars • retail locations • Rapid Growth • $2 billion in sales • Partnerships • Roasting Technology • Joint Ventures, • Volatile Bean Supply Resources • Strategic Alliances Joint Venture with McDonalds Pros • There are more than 30,000 McDonald’s restaurants in 121 countries • Establish brand recognition worldwide • Reliable source of demand • Potential Economies of Scale • Deter McDonald’s from sourcing their own coffee beans Cons • Culture and management differences • Focus taken from retail outlets • McDonald’s quality requirements • Bean Supply Conclusion Starbucks should decline McDonald’s offer because…. ….it does not have the beans.

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