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Starbucks Corporation is a Seattle, Washington-based coffee company. It was the largest coffeehouse company in the world, with 17,009 stores in 50 countries. Starbucks sells drip brewed coffee, espresso-based hot drinks, snacks, and items such as mugs and coffee beans. Starbucks is the world leader in the premium coffee market and has an amazing success story.
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Starbucks sells not only coffee; it sells the “Starbucks’ experience”. The company is successful to convey its vision to the customers. It has successfully convinced customers paying more for high-quality products and a new life style. Starbucks reached its goal to establish and leverage its powerhouse premium brand through rapid expansion of retail operations, introduction of new products and store concepts, as well as development of new distribution channels. Starbucks has revolutionized the coffee business.
The first Starbucks was opened in Seattle, Washington, on March 30, 1971 by three partners: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. The three were inspired by entrepreneur Alfred Peet (whom they knew personally) to sell high-quality coffee beans and equipment.
Entrepreneur Howard Schultz joined the company in 1982 as Director of Retail Operations and Marketing, and after a trip to Milan, Italy, advised that the company should sell coffee and espresso drinks as well as beans. Starbucks began providing coffee to restaurants and espresso bars.
In 1987, with the backing of local investors, Giornale acquired Starbucks’ assets and changed its name to Starbucks Corporation. The company also opened stores in Chicago and Vancouver. A year later Starbucks introduced a mail order catalog with service to all 50 US states.
In year 1992, Starbucks developed an expansion strategy based on targeting areas with favorable demographic profiles together with the company’s infrastructure to support and service them.
For each region, a large city was selected to serve as a hub where a team would support the goal of opening at least 20 stores in the first two years. One of the key success factors in this operation was to recruit professionals with marketing and operating experience in chain-store retailing as area manager. This strategy built upon the growing reputation of the Starbucks brand, which, in some instances, had reached new markets even before stores opened.
The main marketing strategy is to represent Starbucks’ store as a “third place” between work and home. The company could increase the market share in existing markets and open stores in new markets rapidly. Additionally, Starbucks always tries to expand its products portfolio. The company cooperates with other companies to develop and distribute new products.
In 1991, the company had formed a team to manage store development based on a six-month opening plan. Every store has to be varied in size and shape, but must be able to deliver appropriate vision and value, contributing to strengthen the company’s reputation and image throughout the regions being expanded into.
Cost reduction was achieved by centralized buying, by standard contracts development and fixed fees for certain items, and by consolidated work under contractors with good cost-control practices.
Starbucks product supply was also a key in a successful expansion. As another differentiating factor, the company buys coffee on arrangement basis at a significant premium above normal price; this allowed for Starbucks to build trust with producers and obtain top-notch coffee beans from producing countries.
In order to secure an adequate supply, the company entered into fixed-price purchase commitments when available, and preorder coffee to ensure price protection. By this approach, Starbucks able to control costs and avoid price rising in the stores that would have a devastating effect on the company’s image. Starbucks expansion strategy also relied on a limited number of licensing agreements for areas where it did not have the ability to open its own outlets.
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Licensees like Marriot Host International and Aramark allowed Starbucks opening stores respectively in airports and university campuses. Others like Horizon Airlines and United Airlines had Starbucks coffees served on commercial flights, while agreements with Nordstrom’s, Barnes and Noble and Well Fargo opened even more opportunities.
In 1997, the specialty sales division of Starbucks generated sales equal to 12.2% of total revenues.
The company’s international expansion started in 1995, and was based on two strategies: to provide licenses or to create a joint venture with branded local company in the target host country. Starbucks Coffee International (SCI) was created in 1995 to coordinate the international expansion, which started in Japan, Hawaii, Singapore, Philippines, Taiwan and Korea.
Starbucks expansion strategy was well thought: the offensive was to take place in the Pacific Rim in order to gain momentum and strength, far away from Europe and Latin America where coffee shops competition is very strong.
In April 2003, Starbucks completed the purchase of Seattle’s Best Coffee and Torrefazione Italia from AFC Enterprises, make the Starbucks store around the world became more than 6,400. On September 14, 2006, Starbucks rival Diedrich Coffee has announced that it would sell most of its company-owned retail stores to Starbucks.
In 2008, Starbucks continued its expansion, settling in Argentina, Bulgaria, the Czech Republic and Portugal. In Buenos Aires, the biggest Starbucks store in Latin America was opened. In April 2009, Starbucks entered Poland. New stores will be opened in Algeria.
Building a Unique Culture
While Starbucks execute almost enthusiastic standards about coffee quality and service, the personnel policy at Starbucks for employee is free and supportive. Employees are encouraged to put themselves in the position business partners. Management do believes that cheerful employees are the key to remain competitiveness and develop.
Multiple Channels of Distribution
Besides its stand-alone stores, Starbucks has set up cafes and carts in banks, hospitals, buildings shopping centers, supermarkets and office buildings. Further distribution contract have included hotels, airlines and office coffee supplier. Office coffee is a large segment of the coffee market. Associated Services (an office coffee supplier) provides Starbucks coffee exclusively to thousands of businesses round the United States.
Despite the fact that Starbucks is the largest and well known coffeehouse chains and its existence is very obvious in civic areas, the firm’s research stated that only a small percentage (around 7%) of the US population has tried Starbucks product. Through additional distribution contract and new product joint venture, Starbucks hopes to seize more of the US market.
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