18 Starbucks Corporation — 2011 Marlene M

OCD122 UNIVERSITY OF BOLTON WESTERN INTERNATIONAL COLLEGE FZE BUSINESS MANAGEMENT TRIMESTER 3 EXAMINATION 2015/2016 STRATEGIC MANAGEMENT MODULE NO. BAM6002 Date: Friday 19th August 2016 Time: 10:00am – 01:00pm INSTRUCTIONS TO CANDIDATES: Answer ALL questions. This is an open book examination and you are able to bring with you 2 x A4 pages (4 sides) of notes. Text books and reference materials are NOT allowed. You must hand in your notes with your exam paper. The examination questions are based on the pre-released case study (attached). ANSWER ALL QUESTIONS Page 2 of 2 Western International College FZE Business Management Trimester 3 Examination 2015/2016 Strategic Management Module No. BAM6002 1. Critically examine the strategies that Starbucks should implement by taking advantages of the opportunities that exist in the industry while utilizing its strengths? (25 marks) 2. Critically explain how the company can optimally manage its weaknesses while avoiding potential threats imposed by competitors and/or the industry. (25 marks) 3. Identify strategies that CEO of Starbucks should consider in order to continue surpassing its rivals in the industry. (25 marks) 4. Critically analyse various strategies currently implemented by P&G along with appropriate theoretical frameworks (25 marks) END OF QUESTIONS 18 Starbucks Corporation — 2011 Marlene M. Reed and Rochelle R. Brunson Baylor University SBUX http://www.starbucks.com In early 2011, it became apparent that Starbucks’ $9.1 billion in 2010 domestic sales had leap- frogged the company past Burger King ($8.7 billion) and Wendy’s ($8.3 billion), trailing only McDonald’s ($32.4 billion) and Subway ($10.5 billion) as the nation’s third-largest chain restau- rant. Compared to the prior year, Starbucks’ 2010 sales were up 8.7 percent, versus 4.4 percent for McDonald’s, 6.0 percent for Subway, and declines of 2.5 percent for Burger King and 0.6 percent for Wendy’s. Headquartered in Seattle, Washington, and the world’s largest coffee company, Starbucks has entered into a strategic partnership with the maker of Keurig brewers, Green Mountain Coffee Roasters, to deliver coffee to the fast-growing single-serve coffee market. Given the success and popularity of Starbucks VIA instant coffee, the coffee companies are expanding VIA abroad. Starbucks now offers its VIA instant brew in its Chinese stores and other countries. Starbucks currently has locations in 35 cities in China, and CEO Howard Schultz said the company plans to double the number of cities soon. The success of VIA in those Chinese stores exceeded expecta- tions. Starbucks plans to open nearly 1,500 stores in China in the next four years—more than tri- pling the number of stores there. Estimates project Chinese consumption of Arabica at 15 percent per year, making Starbucks a major player in the years to come, at least when it comes to coffee. Starbucks is aggressively expanding its coffee line in the United States, where it sees a potential $377 million market for flavored coffee. Starbucks already dominates the domestic coffee market, having a staggering coffee market share of about 75 percent. Along with expanding its instant coffee business, Starbucks has also started a mobile payment plan in about 6,800 Starbucks stores and close to 1,000 Starbucks at Target stores. Through this payment plan, Apple iPod touch and iPhone users and select Research In Motion BlackBerry users can make purchases at the stores through their smartphones. All users would have to do is to download the Starbucks app from the stores in order to use this service. It has been rumored that Starbucks might acquire rival coffee provider Peet’s Coffee & Tea Inc. Peet’s reported first quarter 2011 earnings per share was 41 cents, up 58 percent versus 2010. Peets says there has been a significant rise in the cost of coffee during the last three months. Peets’ net revenue for that first quarter climbed 9 percent to $88.5 million from $81.2 million for the corresponding period of fiscal 2010. With excellent overall cost management, Peets’ first quarter operating margin was 9.8 percent and its EPS growth was 58 percent. Peets expects its 2011 total revenue growth to be 9 percent. Starbucks recently ended its licensing agreements with Kraft wherein Kraft distributed Starbucks products. Starbucks is opening more than 100 new stores in 2011 in Brazil, the second-largest coffee-consuming country in the world. In early 2011, Starbucks has a total of 16,635 stores in 50 countries, including 500 stores in Tokyo and 500 in London. There is a Starbucks in Beijing’s Forbidden City and on the boulevards of Paris. Of the existing stores, 8,832 are company-operated stores, and 7,803 are licensed stores. History Starbucks was founded in Seattle in 1971 as a roaster and retailer of whole bean and ground coffee, tea, and spices in a single store in Seattle’s Pike Place Market. The company was named after the first mate in Herman Melville’s Moby Dick. The Starbuck logo was inspired by the sea and $"4& t 45"3#6$,4$03103"5*0/ 169 features a twin-tailed mermaid from Greek mythology. The company was incorporated under the laws of the State of Washington in Olympia, Washington, on November 4, 1985. Starbucks went public on June 26, 1992, at a price of $17 per share (or $0.53 per share, adjusted for subsequent stock splits) and closed trading that first day at $21.50 per share. In 2007, Starbucks’ shares fell 50 percent as its United States sales slowed as both Dunkin’ Donuts and McDonald’s marketed low price coffee. However, by 2011, Starbucks was again a boomingly successful business. In January 2011, Starbucks unveiled an alliance with India’s flagship conglomerate—Tata Group. Tata is a wide-ranging company that owns everything from Jaguar cars to steel mills and tea plantations. Its Tata Coffee Ltd. Unit owns the Eight O’Clock Coffee Company in the United States. Starbucks Chairman Howard Schultz, in commenting on this alliance, suggested that India could one day rival China. He said one of the reasons for the alliance is to raise the profile and use of Indian premium Arabica beans in Starbucks stores elsewhere. Internal Issues Vision/Mission Starbucks’ vision is: “Starbucks is committed to ethically sourcing and roasting the highest quality Arabica coffee in the world. With stores around the globe, we are the premier roaster and retailer of specialty coffee in the world.” Starbucks’ mission is: “To inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time.” The principles by which Starbucks operates are found in Exhibit 1, entitled “Starbucks Principles.” EXHIBIT 1 Starbucks Principles Our Coffee It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done. Our Partners We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard. Our Customers When we are fully engaged, We connect with, laugh with, and uplift the lives of our customers—even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection. Our Stores When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life—sometimes slow and savored, sometimes faster. Always full of humanity. Our Neighborhood Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action—bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility—and our potential for good—is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead. Our Shareholders We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks—and everyone it touches—can endure and thrive. 170 ."3-&/&.3&&%"/%30$)&--&3#36/40/ Management The founder of Starbucks, Howard Schultz, serves as the chairman of the board, president, and chief executive officer of the company. Exhibit 2 provides an organizational chart for the company. Starbucks employees are called “partners” and they are considered to be the heart of the “Starbucks Experience.” Its store partners are committed to coffee knowledge, product expertise, and customer service. Products Starbucks has as a primary goal—the delivery of the best coffee available. Operationally, that involves purchasing coffee grown under the highest standards of quality, using ethical trading and responsible growing practices. Starbucks’ coffee buyers personally travel to coffee farms in Latin America, Africa, and Asia to select the highest quality Arabica beans. These beans rep- resent 30 blends and single-origin premium Arabica coffees. When these beans arrive at their roasting plants, Starbucks experts bring out the balance and flavor of the beans through the trade- mark “Starbucks Roast.” Starbucks offers 100 percent Fair Trade Certified whole bean coffee from Rwanda as a lim- ited edition coffee across the United Kingdom Starbucks.

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