Case Analysis No.

STARBUCKS AND MCCAFE - A DAVID VERSUS GOLIATH BATTLE?

Member’s name: Signature

Aquino, Ana Kristina M. ________________________

Lazaro, Maria Lourdes G. ________________________

Date Submitted:

20 September 2019
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
I. POINT OF VIEW

a. Point of view

Howard Schultz - ​Starbucks’ global chairman. As the global chairman, Schultz have the

capacity to make decisions and approve proposals for new strategies to be employed by

Starbucks to address its current problem.

b. Rationale

Starbucks is globally recognized as the premier roaster and retailer of specialty

coffee in the world. The company caters to a wide range of customer demographic, and

even with the high prices of the company’s products, customers are willing to pay

because they believe that the products are worth the price. Starbucks has been

continuously expanding its market to achieve its goal to be a successful global empire.

The company started operating in Australia, first in Sydney’s CBD, followed by a number

of stores, further integrating in the Australian market. However, the plans have not been

successful as some difficulties were faced that resulted to the closing 61 of its

company-operated stores. To strengthen its business in Australia, the company decided

to focus their operations and resources only to the three core cities and surrounding

areas. Even with careful strategic planning, most company-operated stores still had not

performed up to expectations and experienced losses. While the company is

experiencing these difficulties, McDonald’s started to be involved in the ‘upmarket’ coffee

and opened McCafe with a similar style to Starbucks. The strategies applied by

McDonald’s are proven successful and the concept of McCafe is now being adopted in a

number of international markets. As evidenced, the two companies have gradually

overlapped their strategies, with McCafe’s plans to install coffee bars and ‘baristas’
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
serving coffee products similarly being offered by Starbucks, and by Starbucks’ addition

of drive-through windows and hot breakfast and lunch choices.

II. PROBLEM ANALYSIS AND PROBLEM STATEMENT

a. Problem Tree Analysis

b. Problem Statement
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
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How can Starbucks keep up with their other existing and emerging competitors

that offer high quality coffee and service without compromising the quality and branding

that Starbucks is well-known for?

III. FORMULATION AND EVALUATION OF ALTERNATIVES

a. Decision Criteria

The ​decision criteria​ to be used are the following:

i. Market Acceptability ​- The problem statement mainly deals with

marketing and planning issues, which is why it is important to know how
receptive the market will be in the changes will be once the current
problems are solved.
ii. Cost efficiency - provides the highest "value for money". It is important to
know should the costs to be incurred outweigh the benefits to be
received. Ideally, the costs to be incurred should be less, if not the same,
with the benefits.
iii. Ease of implementation - With relation to the cost efficiency, it is also
important to know how straightforward the alternatives will address the
problem. The simpler the process is, while bringing out the greatest value
to the organization, the better.
iv. Ease of modification/Flexibility - The alternatives should be flexible
enough to accommodate sudden changes as while the implementation is
ongoing. Problems might arise one after another, and the decision
alternatives should be able to address these in order to avoid facing it
again in the future.
v. Long-term effectiveness​- After all the efforts placed in the alternatives, it
is important to gauge how long the alternative will be effective. Otherwise,
the organization will be back to square one and will go over all the
planning again.
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
b. SWOT Analysis

OPPORTUNITIES THREATS

● Starbucks’ customers ● Starbucks was not able to

cover a broad base develop a strong foothold
● Despite the high price of in the Australian market
its products, customers ● Australian market is
pay it because they think crowded
it is worth it. ● Strong brands are
● Starbucks is the premier competing for market
roaster and retailer of share
specialty coffee in the ● McDonald’s entrance to
world with more than the ‘upmarket’ coffee
17,000 stores in over 50 ● McCafe was proven
countries successful
● Adapt to changing market ● McCafe’s plans to install
coffee bars with baristas
similar to Starbucks
● Overlapping strategies
between McDonald’s and
Starbucks

S ● Starbucks ambiance S/O S/T

T ● Starbucks New Zealand is
R considered successful
E ● Open to expansion by
N moving away from the
G product and customer
T niches that they have
H traditionally mastered
S ambiance in each store
● Utilize the globally ● Localize each store and
recognized brand name the product offerings to
and loyalty of the cater to different cultures
customers who are willing where the stores are
to pay despite the high located
price ● Address the customers’
● Further enhance the needs that are being met
by the competitors.
across the globe ● Starbucks has started
adding drive-through
windows and hot
breakfast and lunch
choices to compete with
other brands

W ● Stores had not been able W/O W/T

E to meet expectations in ● Refocus its operations on ● Focus more on
A Australia three core cities and introducing products that
K ● Rapid entrance of surrounding areas the other competitors will
N Starbucks to the ● Introduce more localized not be able to imitate
E Australian market was a products without ● Strengthen marketing
S failure detaching from the strategies to further
S ● High rental costs in the Starbucks brand penetrate the market and
E high-profile streets gain edge with the
S ● Management has already emerging competitors
concluded that it would be
better off concentrating its
attention and resources in
other markets in the world

c. Alternative Solutions to the Problem

MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
i. Strengthen marketing strategies to further penetrate the market and gain

edge with the emerging competitors.

ii. Improve plans and goals from aiming to become a global empire to being

a more globalized company that caters to the local interests of each

country store.

iii. Allow franchising instead of having only company-owned stores for

expansion and exposure to the market niche of the other competitors.

d. Evaluation of the Alternatives

i. Alternative 1: Strengthen marketing strategies to further penetrate

the market and gain edge with the emerging competitors.

PROS

a. Preparing marketing strategies will address the specific needs of

the market.

b. Entice consumers to buy on that specific day and increase sales

because of the promo.

c. Consumers will have the sensation of availing a good deal for a

lower cost and availability of budget-friendly, high-quality

options.

d. Starbucks will know what kind of market they are dealing with

and know how to hook consumers based on their specific

preferences or culture.

CONS

a. Slight loss on profit with the combo meal

MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
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b. Existing drive-through system steers away from the company

philosophy of building customer relationships

c. Difficulty upholding customer relationship with the patrons when

they ask customers

ii. Alternative 2: Improve plans and goals from aiming to become a

global empire to being a more globalized company that caters to

the local interests of each country store.

PROS

a. Unique offers in Starbucks all around the globe - incorporating

and/or blending the local culture and products of the country - in

their stores

b. Providing all the countries, with a Starbucks shop, a chance to

have their local products be included in the store.

c. Consumers will have a different and unique Starbucks

experience around the world, without compromising the quality

of food, beverage and service.

CONS

a. The planning process might take more time than expected.

b. Steering away from the original goal might cause a great change

in the company as to their company mission, vision and

philosophy.
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
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iii. Alternative 3: Allow franchising instead of having only

company-owned stores for expansion and exposure to the market

niche of the other competitors.

PROS

a. Easier way to expand to different kinds of market

b. Will benefit not only the Starbucks company, but also the ones

who franchised the store

c. Each store can be customized depending on the franchiser

CONS

a. The culture that Starbucks has worked hard to establish might

be negatively affected if store is not properly managed

b. Patrons and/or other consumers might lose interest due to the

loss of Starbucks’ “premium touch” because of excessive

visibility of the store.

c. Quality of the coffee and service might be affected due to lack of

standardized training of the ‘baristas’ of Starbucks.

d. Low morale for the employees because their option to avail

stocks for Starbucks might disappear.

Below will be the decision criteria, 3 being the highest or most acceptable, 1 being the lowest.

Highest score will be the decision of choice while the next highest score will be the contingency.

Exceeds
Below Standard At Standard
Rating Standard Score
(1) (2)
(3)
Criteria A1 A2 A3
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
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0.9 0.6 0.3
1. Market Least favored by Favored by the Highly favored by
Acceptability the market; market; the market;
(30%)
Accepted by the Accepted by the Accepted by the
market after market within 6 market within 3 to
implementing for 1 months to 1 year 6 months after
year. after implementation
implementation

0.4 0.6 0.2

2. Cost efficiency Costs greatly Costs incurred Benefits surpass
(20%) exceed benefits; matches benefits costs incurred
Least benefits received
received

0.3 0.1 0.2

3. Ease of Full Full Full
implementation implementation implementation implementation
(10%) within 2 years within 1 year within 6 months

0.30 0.45 0.15

4. Ease of Little to no Flexible; can Most flexible; No
modification/ flexibility; sudden accept disruption in the
Flexibility changes will modification but implementation
(15%) disrupt the only up to a due to sudden
implementation certain extent. needed
process modification.

0.5 0.75 0.25

5. Long-term Further revisions Further revisions Further revisions
effectivity and updates after and updates after and updates after
(25%) the the the
implementation implementation implementation
are needed after 1 are needed after 3 are needed after 5
years. years. years.

TOTAL SCORE 2.4 2.5 1.1

IV. DECISION/RECOMMENDATION

a. Decision
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
Alternative 2: Improve plans and goals from aiming to become a global empire to

being a more globalized company that caters to the local interests of each

country store.

b. Rationale

From the original goal of the company to become a global empire, the
company should consider revamping its goals not only to become a global
empire that forces their products to its customers and the customers will adjust
themselves with the products but also to become a globalized company where
they localize their products to the culture where their store is located.
It is important that the management should be able to discuss where they
see the company in the future and what specific actions should be done to be
able to match and surpass the strategies being done by their competitors.

c. Implementation Plan

Relevant/ Critical factors to be

Activities/Processes Time Frame
considered
1. Meeting of the top
● Clear roadmap and guides for
management regarding
action
3 months
improvement of plans and ● All plans must be aligned
towards their new goal
goals of the company

2. Study and observe the

● Historical sales
culture of the country that 2 months ● Specialty coffee category

the store is located ● Market Analysis

3. Incorporation of outside, ● Bidding process

● Quality of local products
local suppliers to Starbucks 2 month
● Adjustment time of Starbucks to
stores
different cultures
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2

V. CONTINGENCY PLAN

a. Alternative 1​: Strengthen marketing strategies to further penetrate the market

and gain edge with the emerging competitors.

b. Rationale

The company should be able to align its product and store ambiance

(where the company has its edge over their competitors) with its market. The

company should also be able to offer competitive prices or competitive

promotions to gain advantage with their competitors.

c. Implementation Plan

Relevant/ Critical factors to be

Activities/Processes Time Frame
considered
1. Meeting with the top and

middle management and ● Historical sales

6 months to 1
● Market analysis
marketing team regarding the year
● Analysis of financial status
new strategy ideas

2. Dry run of the new strategic

● Time consuming
plan to be able to tailor fit it to
● Cost inefficient
3 months
the consumers’ wants and ● Inconsistencies that might affect the
interest of consumers
needs.

3. ​Set at least two (2) fixed days

where Starbucks will offer a

Every 6 ● Profit loss due to lower prices but
promo or combo meal (i.e. 1 months more products released

grande drink with free

MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
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sandwich/pastry for the price

of the coffee)

VI. OVER-ALL ANALYSIS

Strategic planning is always needed by any company to keep up with their fellow

competitors in the market and/or be able to have an edge and branch out to different

markets. McDonald’s saw an opportunity on how to branch out their services by taking

advantage of Starbucks’ weakness when 61 chains closed in Australia due to

competitors. This has helped them gain new consumers by offering specialty coffees like

what Starbucks already has. Weakened Starbucks rebutted by opening a drive thru

window and started offering breakfast or lunch meals which its fast-food competitor also

offers. For Starbucks to improve their sales, the best way is to improve their plans and

goals from aiming to become a global empire to being a more globalized company. By

embracing the culture and being more inclusive, this will bring unique experiences to the

consumers in different Starbucks around the world. Revamping their plans and goals will

also align to the upcoming ‘upmarket’ competitors and be able to keep up or one up

them.

VII. RESOURCES

Adamy, J. (2008, January 7). McDonald's Takes On A Weakened Starbucks. Retrieved

from https://www.wsj.com/articles/SB119967000012871311
MGT 201 Case no. 2 - Starbucks and McCafe - a David versus Goliath battle?
Group no. 2
McCreary, M. (2019, June 4). You Can't Buy a Starbucks Franchise: Here's Why and

What You Can Do Instead. Retrieved from

https://www.entrepreneur.com/article/311377

VOA. (2008, January 10). McDonald's Targets Starbucks. Retrieved from

https://learningenglish.voanews.com/a/a-23-2008-01-10-voa2-83136242/128366.ht

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