Starbucks Corporation gradually became the leader in specialty coffee provider since Howard Schultz purchased the Starbucks name with his I1 Giornale in 1988 (Kachra, 1998). Despite the successful performance based on providing high quality roasted coffee beans, implementing a unique marketing strategy of add ‘experience’ as a premium and differentiation, and cooperating with companies such as Pepsi, Starbucks in 1997 are facing issues whether the company was growing in the best possible way (Kachra, 1998). Indeed, Howard Schultz had to evaluate several new opportunities for Starbucks to further grow in the industry. Using several evaluation criteria, this case analysis will evaluate and analyze the basic issues Howard Schultz faced and come up with the recommended solution, implementation plan, and several contingencies.
Howard Schultz purchased the Starbucks name with his I1 Giornale in 1988 and became the Chairman and CEO of Starbucks Corporation (Kachra, 1998). Since then, Starbucks Corporation expanded successfully as a specialty coffee provider. In 1997, Mr. Schultz realized that Starbucks faced new opportunities despite its rapid growth during the last decade. Thus, Howard Schultz felt the urge to evaluate and choose the next best possible way for Starbucks’ further and sustainable growth (Kachra, 1998).
According to Starbucks Annual Reports, from 1994 to 1996, Starbucks’ Net Earnings soared from $10.2 million to $42.1 million, with its retail tripled in only three years (Kachra, 1998). Starbucks Corporation focused mainly on providing specialty coffee by dealing directly and closely with coffee exporters and concentrating on high quality Arabica coffee beans (Kachra, 1998). With respective of Starbucks’ sourcing system, thorough and extreme careful scrutiny mechanism was implemented to ensure the high quality of Arabica coffee beans from exporters (Kachra, 1998). Also, the art of roasting was of vital importance for Starbucks to offer premium specialty coffee, giving the company significant leverage to charge higher prices (Kachra, 1998). Moreover, sticking to the vision of ‘to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time’, Starbucks’ marketing strategy concerned of selling an experience rather than being mere preferred outlets (Starbucks Mission Statement) (Kachra, 1998). In terms of the company’s products up to 1997, Starbucks offered Coffee, Frappuccino and ice cream (JV with Dreyers’), and served coffee on United Airlines, Nordstrom, Barnes & Noble Bookstores, together with serving through ARAMARK (Kachra, 1998).
Issues and criteria
In spite of a constant formidable performance from 1988, Mr. Howard Schultz faced several immediate and basic issues up to the year of 1997. In terms of the immediate issues, Howard Schultz concerned whether Starbucks should stick to its current business strategy to boost sustainable growth given a number of new domestic and international opportunities (Kachra, 1998). Specifically, one who encourage Starbucks to continue its current strategy argued that Starbucks should continue to develop the brand image and increase presence in different markets (Kachra, 1998). Thus, the company should enhance the ‘coffee experience rather than outlet’ brand image and seek solutions to grab market share from local specialty coffee retailors such as Second Cup, Green Mountain Coffee Inc., Diedrich’s Coffee, etc. (Kachra, 1998). On the other hand, one who though Starbucks should seize the various new opportunities argued that Starbucks should evaluate among opportunities such as new ventures with specialty sales partners, penetration into the grocery chain, mail order business, and other target markets (instant coffee, emerging economies, etc.). Regarding basic issues, Howard Schultz faced the challenge to continue to foster its vision and branding image. The executives of Starbucks also concerned that