STARBUCKS CASE STUDY

CASE SUMMARY
This case talks about the discovery, evolution and spread of coffee to different places and the
journey of how Starbucks rose as a major player in the coffee industry. Starbucks was formed
by three partners, two teachers and a writer in 1971. Schultz joined Starbucks as the
Operations and Marketing Director in 1982. He was so impressed with the Italian Espresso
bars he visited that he left Starbucks and started his own coffee bar chain. Five years down
the line he bought Starbucks and after next five the organization became first coffee
organization to become public. The brand has maintained a success with Non Smoking Policy
even in countries like German where there is few restrictions on smoking. The company aims
to be the premier player in the coffee business.
At Starbucks, Howard Shultz believed that every company must stand for something and
Starbucks stands for good coffee, something which the original owners were passionate
about. This differentiated the company and made it authentic. The company firmly everything
in their business could be either changed or reinvented except one i.e. there will be no
compromise in the quality of the fresh coffee sold.
The founders believed that to mean something to customers you should assume intelligence,
sophistication. If one does this then what may seem to be niche market could very well
appeal to far more people than you imagine.
Starbucks is all about combination of the product, the place, the people and the brand.
Product: The beans used for brewing coffee were selected with utmost care without
compromising the quality and that’s what differentiated the brand. The careful selection
process itself demonstrated their passion to be the best in world of coffee. The buying team
evaluates over 1000 samples every year. The process involves roasting small batches of
coffee and tasting them in a process called cupping. Only a few of them make to their
warehouses. The Starbucks coffee buyers spend approximately 18 weeks every year
travelling to the countries of origin. The aim of traveling is not restricted to buying coffee
alone. The goal is to learn more about coffee and strengthen the relation with growers and
suppliers. It is because of this the Starbucks gets the opportunity of first pick of the best crops
worldwide.
Location: The location planning takes approximately 26 weeks. The selection parameter is
provided by the company based on the size of store, profile of the target population. The
demographics and psychographics of the population along with the pedestrian and vehicular
traffic is considered important before selecting the store site. The stores are usually designed
with incorporation of local culture. The café section is often provided by several comfortable
stuffed chairs and several hard backed chairs. Also people work and also conduct business
meets in the café section for hours.
People: From starting the Starbucks wanted to employer of choice, a company that everybody
wanted to work for. Howard Schultz aimed at the creating a company culture that cared about
its employees. For example, it gives stock options to every single person who works more
than 20hours per week since 1990. Schultz learnt that everything the Starbucks employees do
infront of the customers matter.
The company’s expansion strategy is to partner with local company or retailer to gain
acceptance into the market and expand further. For example., Starbucks and TATA beverages
alliance in India. In other markets such as European and American, since these economies are
coffee drinking, the strategy was somewhat similar but for countries like India and China, the
strategy has to be different because these economies are tea drinking culture. Starbucks gives
a 13 week thorough training to maintain standardization and groom the employees in such a
way that if the customers go to any Starbucks in the world, the feeling or experience should
be the same.
There are competitors of Starbucks in India such a CCD, Qwiky’s, Barista, MCD and more
but Starbucks has managed to create a market share and is continuously expanding in major
cities of India with over 170 now.
Branded coffee retailing in India is at the stage of growth. Coffee is slowly moving towards
becoming social drink. The success of coffee retailing is example of a change in customer
lifestyles but one thing to remember is Indian market is very price sensitive!

Q1) what are the factors that have accounted for the extraordinary success of Starbucks?
Ans) The factors that have accounted for the extraordinary success of Starbucks are:
 Quality of the Product
 Service
 Customer Experience
 Eye for perfection in everything they offer to customer.
Q2) What was the value proposition that Starbucks offers to its customers/that it has created
for the customers?
Ans) The value proposition of Starbucks focused on the brand strategy. The first value
proposition was the special offering and coffee that was given to the customers. The company
offered the best of coffee produced in world to its customers. The second value proposition
was the service. The information given showed that at least an average customer spent
18days per month at Starbucks “Our most loyal customers visit us as often as 18 times a
month, so it could be something as simple as recognizing you and knowing your drink or
customizing your drink just the way you like it.” This made the company to really know what
to expect and could continue drinking coffee as much as they would wish to. The third and
last value proposition is the atmosphere. The company wanted to create a good atmosphere
for their customers, a place where customers would relax and come together.
Q3) Can the mix of product (which is not cheap), place and experience work in India?
Ans) Indian population is changing and adapting to new lifestyle on a continuous rate. With
changing time, the disposable income of the people is also rising. The Starbucks stores appeal
to the rich and upper middle class people which is also a lot as compared to other countries.
Coffee consumption in India is closely associated with out of home consumption as may
prefer tea. Also, the growth of cafe chains over the last decade has boosted the visibility and
per capita consumption of coffee in India. Considering this as a key phenomenon, Starbucks
in India is trying to build up what they call as the ‘third place’ experience, where they want
their consumers to come for the coffee, stay for the warmth and return for the human
connection.
Q4) Build a road map that the company would adopt for expansion in India?
Ans) Starbucks has entered India in JV manner. Tata Starbucks is a 50:50 joint venture
company between Tata Global Beverages and Starbucks Coffee of the US. The company
should remain aggressive in terms of expanding its presence in the coming years, by adding
stores even in Tier-II cities apart from cities in which it has a significant presence. The
company should try to introduce more offerings along with reduction in price so that more
customers can have a taste at the store and have the experience for which the brand is known
for.
Q5) Evaluate the coffee industry in India and Starbucks as an organisation by applying
Porter’s Five Forces Model.
Ans) The following are the Five Forces in Starbucks in Indian coffee industry environment:
 Competitive rivalry or competition – Strong Force
The following external factors contribute to the strong force of competition:
(1) Large number of competitors (Mc Café, CCD, Barista, Coffee Ben, Subway)
(2) Moderate variety of firms
(3) Low switching costs (Competitive pricing among industry players)
 Bargaining power of buyers or customers – Strong Force
The following external factors contribute to the strong bargaining power of customers:
(1) Low switching costs (Competitive pricing among industry players)
(2) High substitute availability
(3) Small size of individual buyers.
 Bargaining power of suppliers – Weak Force
The following external factors contribute to the weak bargaining power of suppliers:
(1) Moderate size of individual suppliers
(2) High variety of suppliers
(3) Large overall supply

 Threat of substitutes or substitution – Strong Force

The following external factors contribute to the threat of substitutes or substitution:
(1) High substitute availability
(2) Low switching costs (Competitive pricing among industry players)
(3) High affordability of substitute products

 Threat of new entrants or new entry – Moderate Force

The following external factors contribute to the threat of new entrants:
(1) Moderate cost of doing business
(2) Moderate supply chain cost
(3) High cost of brand development (which Starbucks has mastered)

Q6) Identify new growth opportunities that be tapped by the company in mature and
developing markets.
Ans) New growth opportunities which can be tapped by the company in mature and
developing markets are:
 Premium membership offers and more lucrative deals to increase the loyalty
 Reward card membership for repeat and loyal customers.
 Focus on revenue generation apart from store sales only.
 College fest and other entertainment sponsorship for increasing visibility and brand
knowledge leading to increased brand engagement.
 More indigenous and cultural engagement to draw patrons to Starbucks and no other
established coffee chains.