Case starbucks

Revised April 7, 2003

Starbucks Corporation: Competing in a Global Market
Starbucks Corporation is a Seattle, Washington-based coffee company. It buys, roasts, and sells whole bean specialty coffees and coffee drinks through an international chain of retail outlets. From its beginnings as a seller of packaged, premium specialty coffees, Starbucks has evolved into a firm known for itscoffeehouses, where people can purchase beverages and food items as well as packaged whole bean and ground coffee. Starbucks is credited with changing the way Americans--and people around the world--view and consume coffee, and its success has attracted global attention. Starbucks has consistently been one of the fastest growing companies in the United States. Over a 10-year period starting in 1992, thecompany’s net revenues increased at a compounded annual growth rate of 20%, to $3.3 billion in fiscal 2002. Net earnings have grown at an annual compounded growth rate of 30% to $218 million in fiscal 2002, which is the highest reported net earnings figure in the company's history (See Exhibit 1). As Business Week tells it: On Wall Street, Starbucks is the last great growth story. Its stock,including four splits, has soared more than 2,200% over the past decade, surpassing Wal-Mart, General Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total return. Now at $21 [September 2002], it is hovering near its all-time high of $23 in July [2002], before the overall market drop.1 To continue this rapid pace of growth, the firm’s senior executives are looking to expand internationally.Specifically, they are interested in further expansion in Europe (including the Middle East), Asia Pacific (including Australia and New Zealand) and Latin America. Expanding in these three continents represents both a challenge and an opportunity to Starbucks. While the opportunity of increased revenues from further expansion is readily apparent to the company’s top management, what is not clear is how todeal with growing “anti-globalization” sentiment around the world. This case looks at issues that are arising as Starbucks seeks to dominate specialty coffee markets around the world and explores what changes in strategy might be required.

This case was written by Professors Suresh Kotha and Debra Glassman, both from the University of Washington, Business School, as the basis for classdiscussion rather than to illustrate either effective or ineffective handling of an administrative situation. Some of the facts provided in the case have been disguised to protect confidentiality. Copyright © Kotha & Glassman 2003. All rights reserved.

1

Planet Starbucks, Business Week, September 9, 2002, p. 100-110.

1

BACKGROUND
In 1971, three Seattle entrepreneurs—Jerry Baldwin, ZevSiegl, and Gordon Bowker—started selling whole-bean coffee in Seattle's Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick.2 By 1982, the business had grown to five stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of U.S. operations for Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Through selling to Starbucks, Schultz was introduced to the three founders, who then recruited him to bring marketing savvy to their company. Schultz, 29 and recently married, was eager to leave New York. He joined Starbucks as manager of retail sales and marketing. A year later, Schultz visitedItaly for the first time on a buying trip. He noticed that coffee is an integral part of the culture in Italy; Italians start their day at an espresso bar and later in the day return with their friends. There are 200,000 coffee bars in Italy, and about 1500 in Milan alone. Schultz believed that, given the chance, Americans would pay good money for a premium cup of coffee and a stylish place to enjoy...