Please use the Case Coach) as a guide for preparing and writing your hand-ins. Please also use the ”Overview Slides” as a summary of marketing theory you may need to apply to the case. The length of the hand-in will vary each week depending on the case, but in general, most hand-ins will be between 3 and 5 pages (single spaced) plus exhibits. The questions for each case are very important and you must include good answers to all of them in your analysis

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1. from content, Understand the main theme of the case and analyze accordingly.

2. Identification of type of case

3. correctly done SWOT

4. 3-5 pages

5. Creat a short catalogue for this case analysis.

Please use the Case Coach) as a guide for preparing and writing your hand-ins. Please also use the ”Overview Slides” as a summary of marketing theory you may need to apply to the case. The length of the hand-in will vary each week depending on the case, but in general, most hand-ins will be between 3 and 5 pages (single spaced) plus exhibits. The questions for each case are very important and you must include good answers to all of them in your analysis

above.

 

YU Starbucks Coffee Company Transformation & Renewal & SWOT Analysis Case Study
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YU Starbucks Coffee Company Transformation & Renewal & SWOT Analysis Case Study
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YU Starbucks Coffee Company Transformation & Renewal & SWOT Analysis Case Study
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YU Starbucks Coffee Company Transformation & Renewal & SWOT Analysis Case Study
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For the exclusive use of z. yang, 2021. 9-314-068 JUNE 2, 2014 NANCY F. KOEHN KELLY MCNAMARA NORA KHAN ELIZABETH LEGRIS Starbucks Coffee Company: Transformation and Renewal At the very heart of being a merchant is a desire to tell a story by making sensory, emotional connections. Once, twice, or sixteen thousand times. Ideally, every Starbucks store should tell a story about coffee and what we as an organization believe in. That story should unfold via the taste and presentation of our products, as well as the sights, sounds and smells that surround our customers…Our stores and partners are at their best when they collaborate to provide an oasis, an uplifting feeling of comfort, connection, as well as a deep respect for the coffee and communities we serve. — Howard Schultz1 On a gray morning in February 2007, Howard Schultz sat alone at his kitchen table in Seattle, Washington, thinking about Starbucks, the company he had done so much to build. As his thoughts crystallized, he wrote them down in an impromptu memo to the senior leadership team (Exhibit 1). It seemed clear to him that the company he and a group of local investors had bought in 1987 and he had led through almost two decades of rapid growth now faced large-scale threats from outside, and — even more concerning — looming problems inside the organization. The entrepreneur and then-Starbucks chairman of the board was troubled, and he wanted his senior colleagues to feel the rising anxiety that came with “knowing that Starbucks was under attack, mostly from within.”2 Schultz was an entrepreneur, fascinated, as he described it, by the magic of the merchant’s art. As a young boy growing up in Brooklyn, he had been entranced by the power of storeowners and other sellers to communicate a story about a particular product or experience. In 1982, Schultz moved to Seattle with his wife Sheri to head up marketing for a small coffee company called Starbucks, based at the historic Pike Place Market. On a 1983 buying trip to Milan, Schultz marveled at the skill of trained baristas in Italian coffee bars as they prepared espresso, cappuccino, and other beverages made from high-quality arabica beans.3 He took a keen interest in the coffee bars he visited that trip, appreciating that they were places where Italians came not only to drink coffee, but also to connect with friends and the local community.4 Once back in Seattle, Schultz kept turning over in his head what he had seen and experienced in Italy. He began to envision the expansion of Starbucks as a way HBS Professor Nancy F. Koehn and independent researchers Kelly McNamara, Nora Khan, and Elizabeth Legris prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by zhonglin yang in MGM B01 Marketing Management Summer 2021 taught by Tarun Dewan, University of Toronto from May 2021 to Nov 2021. For the exclusive use of z. yang, 2021. 314-068 Starbucks Coffee Company: Transformation and Renewal to introduce Americans to a specific story — one of the fine coffee, craftsmanship, ritual, and human connection that he had found in Italian espresso bars.5 After Schultz acquired Starbucks in 1987, he pursued this dream, building a national, and by the late 1990s, global network of stores. He constructed an organization and the larger infrastructure to support its growing footprint, as well as a very powerful brand. As he and his team did this, Schultz visited all types of retailers, from knife makers in Milan to the whimsical Paris-based clothing retailer Colette, to small restaurants tucked away near Radio City Music Hall.6 In each venue, he took in the behavior of salespeople, the presentation of goods, and the feel of each space: the narrative the merchant had decided — consciously or not — to share. To Schultz, the success of a merchant depended “on his or her ability to tell a story. What people see or hear or smell or do when they enter a space guides their feelings, enticing them to celebrate whatever the seller has to offer.”7 On that February morning in 2007, Schultz was worried that Starbucks was losing its ability to tell its own nuanced, complex and layered story, one built over 35 years, to its “partners” (the company name for its employees), customers, and the larger public. Schultz’s apprehension had been building for almost a year. In 2006, he had visited hundreds of Starbucks stores around the world, and time and again noticed an element in the texture of the store experience had been lost. “I sensed,” he remembered, “something intrinsic to Starbucks brand was missing. An aura. A spirit. At first I couldn’t put my finger on it. No one thing was sapping the stores of a certain soul. Rather, the unintended consequences resulting from the absence of several things that had distinguished our brand were, I feared, silently deflating it.”8 For one thing, Schultz noticed that a customer walking into a store no longer necessarily had a human connection to his or her barista. Few baristas seemed to remember customers’ names. For another, the large espresso machines in many stores effectively blocked a customer’s line of sight. This obscured the theater of coffee drink preparation, and diminished contact between customers and partners. In some stores, the smell of burnt cheese from ovens warming breakfast sandwiches overpowered the smell of coffee, an essential component of the Starbucks Experience.9 Further compounding Schultz’s concerns was the fact that stores were running out of ingredients, a symptom, the entrepreneur reasoned, of potentially larger issues. Perhaps most disheartening of all for Schultz was his observation that some store managers no longer seemed personally invested in their work, or proud of what they were doing; more than a handful seemed more concerned with gross margins than with the company’s core values.10 Now, in early 2007, Schultz thought it was time to act. This meant carefully identifying the specific threats facing the company, and communicating these and what he had experienced on his store visits to his senior team. Since the mid-1980s, Schultz had written numerous free-form memos to coworkers. He had used these missives to lay out his general thoughts on the business, outline his plans for new initiatives, and articulate his philosophy as a merchant. But as Schultz sat down to put his thoughts onto paper that February morning, he knew this memo would be different; this message would frame the company as having arrived at the brink of a crisis (Exhibit 1). In contrast to Schultz’s observations and instincts, most of the broad financial metrics sounded no alarm. In fiscal 2006, Starbucks revenues had climbed to $7.8 billion, a 22% increase from the previous year. Net earnings had risen to $564 million, a 14% climb from 2005 (Exhibit 2).11 Each week more than 40 million new and repeat visitors pushed through the doors at the company’s more than 12,400 outlets around the world.12 2 This document is authorized for use only by zhonglin yang in MGM B01 Marketing Management Summer 2021 taught by Tarun Dewan, University of Toronto from May 2021 to Nov 2021. For the exclusive use of z. yang, 2021. Starbucks Coffee Company: Transformation and Renewal 314-068 Since Starbucks had gone public in 1992, it had had a long track record of impressive growth, with revenues increasing at a compound annual growth rate of 36%.13 Some of the growth was fueled by the expansion of the young specialty coffee market in the larger context, and some by Starbucks opening stores — in North America and then around the world — at increasing speed. For the financial year 2000, for example, Starbucks opened just over 1000 stores; six years later, the company opened almost 2200.14 In early 2007, Starbucks was the largest specialty coffee retailer in the world, and the market leader in the young sector. A layer below these achievements, however, all was not well. As Schultz sat down to compose his memo, he remembered the whispered concerns he had heard from store managers and partners about declining comparable sales, also known as same-store sales, which measured how fast sales were growing at stores open at least a year. “Comps,” as they were known in the business, were one of the most important barometers used by financial analysts to assess a range of retail businesses, including Starbucks. Strong comps suggested Starbucks was expanding organically — that its stores continued to attract new business over and above that generated by new outlets. Declining comps could indicate that newly opened stores were cannibalizing existing ones, that competition was pulling sales away, or that broader market conditions were weakening. In September 2006, when the company closed its books on the financial year, same-store sales were 7% higher than the year before.15 Though an impressive measure by common standards, the rate represented a slowing from 8% in 2005, and 10% in 2004.16 More troubling, however, remained the anecdotal evidence from partners. Given their day-to-day observations of what was happening in stores with customers, Schultz reasoned their unease regarding slowing traffic was reason for concern. Against this backdrop, the entrepreneur composed his memo (Exhibit 1). He wanted to articulate what he saw as the major issues facing the company without assigning direct blame to any one individual or team. He began: Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks Experience, and, what some might call the commoditization of our brand. Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces.17 Schultz pointed to specific examples of dilution, including streamlined store design. This, he noted, was done to achieve efficiencies of scale, but resulted in “stores that no longer have the soul of the past” or “the warm feeling of a neighborhood store.”18 “Some people,” he wrote, “even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee.”19 Schultz was anxious that the power of Starbucks the merchant to tell its customers the story of its offerings, and to include them in the ritual of buying, roasting and selling the highest-quality coffee, had been seriously compromised. Schultz believed this compromise had left the door open for competitors. “While the current state of affairs for the most part is self-induced, that has led to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers,” he wrote. “This must be eradicated.”20 To do this, and to right the other problems Schultz had observed, Starbucks needed to rediscover why it was in business apart from a basic imperative toward growth. 3 This document is authorized for use only by zhonglin yang in MGM B01 Marketing Management Summer 2021 taught by Tarun Dewan, University of Toronto from May 2021 to Nov 2021. For the exclusive use of z. yang, 2021. 314-068 Starbucks Coffee Company: Transformation and Renewal Senior leadership had to determine what had been lost in the relentless pursuit of efficiency and satisfying the financial side of the business. Schultz’s memo concluded: We desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience…We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.21 On February 23, 2007, Schultz’s memo leaked to the press. “The Commoditization of the Starbucks Experience” appeared on the blog Starbucks Gossip, and made instant news as journalists, analysts, bloggers, and others hustled to register their thoughts on Schultz’s analysis of the company’s weaknesses. (“Starbucks Chairman Says Trouble May Be Brewing,” announced a Wall Street Journal headline.)22 A wide-ranging discussion emerged online and in traditional media outlets. Some observers praised the memo as an effort to save the brand. Others tacked additional criticism onto Schultz’s assessment. Still others shrugged it off as a clever publicity stunt. Watching the tempest of reaction unfold, Schultz realized that Starbucks was poorly equipped to respond. In the digital realm, the company lacked the outlets and capabilities to effectively talk back to a range of stakeholders. More broadly, he reflected, Starbucks had not successfully told the story of what made it different from other retailers — namely, its passion for great coffee and a rewarding experience around the beverage, its commitment to partners in the form of health-care and Bean Stock (stock- based) benefits, and its support of localized, sustainable coffee farming around the world. The coffee retailer had failed to do this most obviously in the online space. But it had dropped the ball in other venues as well. “We were losing control of our story,” Schultz reflected, “in the stores as well as in the world.”23 This insight, that his company was losing control of its own narrative, would shape the entrepreneur and his team’s efforts during the next four years. To reinvigorate its core purpose and identity, Starbucks would have to relearn its own story. It would have to find a way to articulate it first to its own people, and then to customers, investors and the broader global community. This meant that the organization had to adapt to the changing media landscape, to the evolving mindsets of partners, customers and other stakeholders, and to a much bigger, stronger field of competitors. The brick-and-mortar store, where so much of the company’s experience and history was rooted, was now just one of several frontiers that would help shape Starbucks destiny in the 21st century. In early 2007, the company had arrived at an important crossroads. Ironically, Schultz himself had mapped out such a juncture four years earlier during an interview. Discussing how Starbucks planned to reconcile its breakneck growth with its original values, he described the fine line Starbucks would have to walk to deliver on both its financial objectives and larger purpose. “The question,” he noted then, “was not how big we could become, but could we get big and stay small? Could we maintain the intimacy with our customers? Could we maintain and preserve the culture and values of the company? Most important, could we continue to build the company that achieved the fragile balance between fiscal responsibility, profitability, and, most important to me personally, the benevolence of having a social conscience?”24 In 2003, the man who had done more than anyone else to build and nurture Starbucks could hardly have known how prophetic his words would prove. 4 This document is authorized for use only by zhonglin yang in MGM B01 Marketing Management Summer 2021 taught by Tarun Dewan, University of Toronto from May 2021 to Nov 2021. For the exclusive use of z. yang, 2021. Starbucks Coffee Company: Transformation and Renewal 314-068 Seeds of a Crisis In the 20 years since Schultz began to build Starbucks into a global company, the business had achieved extraordinary financial success. Some of this was measured in rapid revenue growth and corresponding increases in net income. Some was captured in the stock price. This rose quickly through the 1990s, stagnated some from 2000 to 2002 in line with the S&P 500 and other indices, and then began to climb again in 2003 and 2004. Though Starbucks stock price fell in 2005, it rebounded the following year (Exhibit 5).25 By June 2006, $1000 invested at the time of the IPO in 1992 would have returned nearly $70,000.26 Market capitalization reflected this appreciation, rising from nearly $300 million in June 1992 to almost $29 billion in June 2006.27 Starbucks historic sales growth and strong stock performance had led the investment community to expect — and indeed, evaluate the company on — continued expansion. During the late 1990s and early 2000s, the company had delivered soundly on these expectations, increasing its total store count from just under 1,900 in 1998 to more than 7,200 five years later.28 Growth continued to accelerate, and in fiscal 2005, Starbucks opened more than 1,600 net new stores — an average of four a day.29 Starbucks expansion was not limited to the United States. In 1995, Starbucks operated 677 stores across both the US and Canada. In 1996, Starbucks opened its first store outside of North America in Tokyo, Japan.30 From 2000 to 2007, the total number of international outlets rose from 502 stores to 4,327.31 Growth spanned continents, with stores opening in Asia, Europe, the Middle East, Africa, and the Americas.32 At the end of fiscal 2007, the United States remained Starbucks largest market with 10,684 stores, roughly two-thirds of the company’s total outlets.33 In many large U.S. cities there were multiple Starbucks locations within a few blocks of each other. In Manhattan, for example, the Marriott Marquis hotel and Macy’s flagship department store in Herald Square each housed two Starbucks stores.34 Seattle, Starbucks home, had a particularly high concentration of stores, with one for every 14,000 people. (The nationwide average was less than half as dense: one store for every 30,000 people).35 At one Seattle intersection there were Starbucks stores on three corners, and the company considered placing a store on the fourth as well.36 It seemed the coffee retailer had still not reached a saturation point relative to national demand.37 When Schultz composed his internal memo in early 2007, Starbucks was on track to open a record 2,400 stores by the end of the year on the way to its stated goal of operating 40,000 stores worldwide.38 Even for a company well accustomed to remarkable growth, this was heady stuff. The impetus for all this expansion came not only from Wall Street, but also from within the company itself. Schultz and other executives believed that Starbucks offered customers a product and an experience they could not find elsewhere. From this perspective, senior leaders maintained that the coffee retailer had the opportunity, and perhaps even the obligation, to bring Starbucks to as many customers as possible. Executives also noted that the company provided its internal partners with generous benefits and wide-ranging career opportunities. By their reasoning, Starb …
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