Starbucks Strategy free essay sample

What are some of the decision factors that Starbucks assess? Starbucks strategy for expanding its retail business is to increase its market share in existing markets and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. In support of this strategy, the Company opened 647 new stores during the fiscal year end in September of 2001. At fiscal year end, Starbucks had 2,971 Company-operated stores in 38 states, the District of Columbia and five Canadian provinces (which comprise the Company-operated North American retail operations), as well as 252 stores in the United Kingdom, 25 stores in Thailand and 18 stores in Australia (which comprise the Company-operated international retail operations). Company-operated retail stores accounted for approximately 84% of net revenues during fiscal 2001. Starbucks Specialty Operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop, and dine, by establishing relationships with prominent third parties that share Starbucks values and commitment to quality. We will write a custom essay sample on Starbucks Strategy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page These relationships take various forms, including arrangements with foodservice companies and retail store licensing agreements for North American locations such as grocery channel licensing agreements, warehouse club accounts, international retail store licensing agreements, direct-to-consumer market channels, joint ventures, and other initiatives related to the Companys core businesses. The Company sells whole bean and ground coffees to warehouse club chains. As part of its agreement with Starbucks to market and distribute to the grocery channel, Kraft also distributes Starbucks products to warehouse club stores. Revenues from warehouse club accounts accounted for approximately 13% of specialty revenues in fiscal 2001. The Company makes fresh Starbucks coffee and coffee-related products conveniently available via mail order and on-line. Starbucks publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees, certain food items and select coffee-making equipment and accessories, and the Company maintains a Website at www. starbucks. com with an on-line store that allows customers to purchase coffee, gifts, and other items via the Internet. The Company has several other initiatives related to its core businesses that are intended to enhance the customers experience at Starbucks retail stores. For example, Starbucks has wireless Internet access in its retail stores, as well as marketed a selection of premium tea products. The Company has two non-retail domestic 50-50 joint ventures. The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company, a division of PepsiCo, Inc. , develops and distributes ready-to-drink coffee-based products. By the end of fiscal year, the â€Å"joint venture† was distributing bottled Frappuccino coffee drink to approximately 200,000 grocery food chains, convenience and drug stores and other locations throughout the United States and Canada. The Company has a joint venture with Dreyers Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2001, the joint venture was distributing a variety of ice cream and novelty products to over 20,000 grocery food chains throughout the United States. What role does the Chinese government play in Starbucks operations in China? Since China joined the World Trade Organization (WTO), Starbucks’ strategy has not changed. However, the entrance into the Asian market did have a large indirect impact on Starbucks. This allowed the entry of other companies and other investors, which brought in more foreigners into China, and more consumers of Starbucks’ coffee. Studies show that most of its customers are foreigners and businesspersons, who come the most frequently of all its customers. Starbucks entered China with two specific strikes against them: first, consultants told Starbucks that smoking was rampant throughout Asia, and the no-smoking policy would be detrimental. Second, consultants said that no Chinese would ever lose face by drinking from a cup in the street since the Chinese preferred not to eat or drink in public. Starbucks’ no-smoking policy came out of its desire for nothing – cologne, perfume, nor tobacco smoke – to interfere with the smell of their dark-roasted beans. Upon entering Asia, Starbucks stuck with its no-smoking policy, which according to interviews turns out to be a welcomed policy. Even the smokers claimed not to have a problem with smoking outside. Although the Chinese dislike drinking in public, the high awareness of the brand and the Chinese market being so brand-driven outweighs this habit. The Chinese consumers perceived the high prices as conveying quality and sophistication. Retailers keep this in mind as they charge more for public consumption, as customers go to Starbucks if not for the coffee, but to present themselves as modern Chinese in a public setting. Chinas tightly regulated business environment still throws up lots of hurdles for Starbucks. Its fragmented government and currency-conversion limits make banking difficult. If I want to move money out of China, its a hellish process, says Charles Jemley, Starbucks vice president of finance in China. Book bags and coffee mugs barely made it out of customs in time for Starbucks to pass them out at a rural teacher-training session it sponsored. Poor water quality in some cities means Starbucks has to install elaborate filtering systems. Mr. Jiang Hongbin, a lawmaker representing the Heilingjiang province, submitted a motion to the National Peoples Congress to close the outlet immediately. The Forbidden City was the Chinese imperial palace during the mid-Ming and the Qing Dynasties. The palace was forbidden in the sense that, apart from members of the imperial household, no one could enter it without the Emperors permission. Today it has transformed into a museum and a popular tourist spot, attracting 7 million local Chinese and overseas visitors each year. The discontent of the Chinese is a cultural issue; it is about invasion of Chinese culture by western culture, and about how Starbucks does not fit into the environment of the Forbidden City. Starbucks obviously understands the importance of respecting local culture when doing business in China. In 2006, it has appointed Dr. Eden Woon as Vice President of Government Affairs, Public Relations Corporate Social Responsibility for Greater China. Dr. Woon was previously CEO of the Hong Kong General Chamber of Commerce, which has played a key role in working on the closer integration of Hong Kongs economy with that of China. Prior to that, he was Executive Director of the Washington State China Relations Council and has spent 22 years with the U. S. Government. I found his appointment to be a very good move for Starbucks, as it is important to pick someone who can lobby the Chinese government and at the same time get the Chinese message back to corporate America. What are some of their entry strategies? Starbucks utilized a three-step strategy for entering in to the Asian market. I general the phases are to prevent competitors from getting a head start, to build upon the growing desire for Western brands, and to take advantage of higher coffee consumption rates in different countries. In opening coffeehouses abroad, Starbucks established joint ventures, selecting local business partners to help recruit talented individuals, set up supplier relationships, and understand market conditions. Attributes of each partner include shared values and corporate culture, strong retail experience, dedicated human resources, commitment to customer service, creativity, local knowledge, brand building skills, and strong financial resources. The chosen partner is granted the right to develop and operate coffeehouses throughout a defined region. First, by choosing, a region in which there was not a strong base of coffee drinkers, Starbucks had a first-mover advantage and the opportunity to create a new perception of coffee, as it had in the United States. Schultz explained, â€Å"The maturity of the coffee market in Europe was very strong and was not going to change much over the years. The Asian market was in its developmental stage and we had an opportunity to position Starbucks as a leader in a new industry, and in a sense, educate a market about the quality of coffee, the experience, and the idea of Starbucks becoming the third place between home and work in those countries. BY injecting itself into the Asian market first, all other competitors were forced to take the back seat. In Hong Kong, Starbucks created a company with Maxim’s Caterer, a food, and beverage business with 46 years of experience in Hong Kong. Maxim’s Caterer provided Starbucks with valuable insight about Chinese preferences, and proved to be knowledgeable business partners who were well informed about establishing and running businesses in China. Maxim’s Caterer advised Starbucks to add traditional Chinese items, such as festival mooncakes, curry puffs, and sausage rolls, to its Western menu. An additional advantage, discovered through relationship mapping, was that Maxim’s Caterer was also business partners with the lucrative Hong Kong Land Company, a group of businessmen who had cornered much of Hong Kong’s real-estate market. Second, by carefully choosing its â€Å"joint venture† partners through extensive relationship mapping, a process used by a company’s network of adversaries, friends, and government may be revealed Starbucks was able to successfully penetration of the Hong Kong market. In 1994, to first establish its presence in China during Entry, Starbucks’ then- executive Lawrence Maltz distributed free cups of Starbucks coffee to Beijing hotel guests. Seeing there was significant interest from both foreigners familiar with the Starbucks brand and Chinese eager to participate in this element of Western culture, Starbucks began to research the Chinese environment. Finding it responsive to the coffee business, Starbucks pursued the China market. Thirdly, the â€Å"Global Integration Phase† requires a balance between the parent company’s jurisdiction and the foreign company’s knowledge of its market abroad without disrupting the success of the brand in either location. † â€Å"Starbucks has become a part of popular culture in America, which is being transferred throughout the world and in a significant way in Asia. † Since the Asian market has become increasingly important to the global financial success and reputation of this company, Starbucks has been more and more willing to commit to its joint ventures in the region. China is Starbucks’ biggest overseas growth opportunity. Although Starbucks currently has more than 500 stores in Japan and less than 200 in China, its success and presence in China is escalating. In 2003, Starbucks increased its stakes in Taiwan and Shanghai from 5% to 50%, indicating a deepening commitment to the Chinese market. Starbucks paid its Taiwanese joint venture partner $21. 3 million to become an equal partner in its Taiwan-based company. By increasing its equity positions in these markets, Starbucks not only indicating that it has successfully penetrated the Chinese market, but also that it is committed to remaining in China for the long term. What strategic choices do they seem to make? By tailoring Starbucks’ global development strategy to the Chinese consumer market, Starbucks has successfully presented ‘One Face to China. ’ By establishing a presence in China before China’s WTO entrance, Starbucks was able to establish a loyal Customer base through first-mover advantage. Now dedicated to committing greater financial resources due to its favorable reception, Starbucks can further develop and expand into the Chinese market while in its Global Integration phase. Continuing with its plans to open one new store every month, Starbucks’ successful permeation into the Chinese market exemplifies both the escalating global interest in investing in China as well as the potential for Western brands to effectively integrate their products into Chinese culture. Though it is not yet close to overtaking the centuries-long tradition of tea, Starbucks has at least successfully established a new coffee culture in the Orient.