Making Profile for Entrepreneurship for International Franchise - Starbucks - Case Study Example

Topic: Entrepreneurship COMA N453 Student’s Name Instructor’s name 27th June 2011 Abstract Starbuck is an internationally recognized company with its headquarters in Washington. It is the largest company in the coffee business worldwide and it has more than 17,000 stores in more than 50 countries. Among the leading countries where the company has its operations include the United States where the company has more than 11,000 stores, the United Kingdom where the company has more than 700 stores and Canada with more than 1000 stores. Among the products offered by the company include snacks, pastries, Panini, cold and hot sandwiches, coffee beans, cold and hot drinks, salads, tumblers and mugs. The company is also involved in the business of marketing books, film and music through its Hear Music and entertainment divisions (Starbucks Coffee Company, 2010). It is imperative to note that most of the products offered by the company are specific or seasonal and such products depend entirely on the store locality. In different groceries operated by the company brands such as coffee and ice-cream are also offered to the customers. This is one of the strategies used by the company to reach customers in all segments of the market. From its establishment, Starbuck has continued to expand its operations widely to other parts of the world with one-third of the company stores located outside the United States since 1990s. The purpose of this project is to explore Starbuck’s profile. Among the issues that will be discussed here include the name and the tile of the company (entrepreneurship), when the business started, how the business developed, activities, budget and profits, management and responsibilities, risks and the difficulties the entrepreneurship faced, value/share in the market, strength and weaknesses, vision and the expectation for the future. Name of the entrepreneurship The name of the entrepreneurship is Starbuck Corporation. The name was coined by Bowker, Siegel and Baldwin from the need to honour Starbuck. Starbuck was perceived by Siegel, Bowker and Baldwin as a sincere lover of coffee. The three individuals met Starbuck in Melville’s Moby Dick (Miller, 2011). The name was also pleasing to the three individuals because it evoked the tradition of seafaring and high sea romance of the early traders of coffee beverage. The logo of the company was later designed by a friend of the company who architectured the name by encircling it with a mermaid that had two tails. When it started The first restaurant or store was established on 30th March 191 in Seattle. The three main partners who championed the establishment of the store included Zev Siegel, Gordon Bowker and Jerry Baldwin. Zev Siegel and Jerry Baldwin were teachers while Gordon Bowker was a writer (Miller, 2011). The main inspiration behind the establishment of Starbuck was Alfred Peet who operated a business of selling high quality coffee equipments and coffee beans. This kind of business inspired the three young entrepreneurs who sought to make coffee selling business a more professional and first class business. When Starbuck begun in n1971 the main activities involved roasting and retailing ground coffee and whole bean, spices and tea. All the above activities were undertaken from one central store which was located in Pike Place Market in Seattle. Alfred Peet was the main supplier of the inputs particularly the coffee beans during the initial years of the business operations. However, as Starbuck expanded the entrepreneurs begun purchasing coffee beans directly from the growers. In 1982, Howard Schultz joined Starbuck Company as the marketing and retail operations director. He later travelled to Milan for a business trip and on coming back advised the Starbuck owners or partners to sell espresso and coffee drinks (Allison, 2011). However, the idea was initially turned down by the three partners who thought that by engaging in other activities the main focus of the business would be distracted. Development Starbuck Company developed through the increase of the product range offered to the consumers as well as acquisitions. For example, in 1984 the company purchased Peet’s and thus the business took charge of the supply of coffee beans to its stores. Schultz’s had already begun his own chain of businesses of selling coffee beverages and drinks, the idea he brought after his visit to Milan and which was rejected by three Starbuck partners. In this respect, the Starbuck chain was sold to the II Giornale which was owned by Schultz (Schultz & Dori, 1997). After purchasing Starbuck in 1987, the II Giornale was later rebranded to Starbuck. Consequently, the business expanded quickly to other regions in the country such as British Columbia, Vancouver Waterfront Station, Illinois and Chicago. This expansion was done in 1987 after the rebranding of II Giornale to Starbuck. In 1992, the company was listed in the stock market after its initial public offering and subsequently the number of retail outlets increased to 165. International development Japan was the first location outside the United States market where Starbuck Corporation set its international operations in 1996. This was followed by entrance of the company in the United Kingdom market in 1998 after acquiring the Seattle Coffee Company for $83 million. All the acquired outlets in the UK were re-branded to Starbuck Corporation. The company continued with its expansion strategies of business development and in 2002 more Starbuck outlets were opened in Latin America. The company opened its outlets and stores in Peru and Lima in 2003. In 2010 the company also opened new stores and retail outlets in Central America particularly in San Salvador. The purchase of Torrefasizione and Seattle’s Best Coffee stores in Italy was completed in 2003. After this purchase the total number of stores and retail outlets operated by Starbuck outside the United States totalled 6000 by 2011. Starbuck’s main competitor Diedrich Coffee sold majority of its retail stores in 2006 to Starbuck and on purchasing the retail stores they were converted to Starbuck (Behar & Janet, 2007). Closures After a long controversy that lasted for more than seven years, Starbuck closed its stores in Beijing in 2007 after the store was rejected as a trampling block to the Chinese culture. Plans to develop its business further to India were also cancelled in 2007. Difficult environment for undertaking business and challenges in business operations resulted into the closure of six stores and retail outlets I Israel in 2000. The company made major announcements in 2008 by indicating that it was in the process of closing more than 600 stores whose performance was not impressive in the United States. It also announced that it would halt its expansion plans in the United States due to the rising uncertainties about the economy. In order to boost profits and perform brand re-energizement, the company laid off more than 1000 employees in its retail outlets in 2008. However, the layoffs and the continued closure of the company’s retail outlets proved futile because it resulted into a slowdown in expansion and growth of the company’s operations which had been witnessed significantly in the 1990s. In 2008, Starbuck also closed down its operations in 60 out of its 80 stores in Australia because the culture of the Australian people proved unfavourable to the company’s business. In 2009, more than 7000 employment positions were eliminated and 300 more outlets were closed due to underperformance. As a result, the company terminated more than 18,000 jobs in the United States market alone from the beginning of 2008 to the end of 2009. In the same period, operations in more than 900 stores were halted as the company’s strategy of boosting its profitability through cost reduction. Partnerships Partnerships are other avenue through which Starbuck has continued to develop its operations. Starbuck has continued to partner with bookstores such as Noble & Barnes where the Starbuck coffee beverages are marketed in the bookstores. This has mainly been the case in the United States and Canada. In Canada, Starbuck has partnered with Chapters-Indigo. In Brazil, Starbuck has partnered with Fnac and Livraria Saraiva. In Thailand, Starbuck has undertaken the B2S strategy in order to capitalize on the Thailand market. Prior to the World Cup in 2010 Starbuck partnered with Southern Sun Hotels in order to increase its coffee beverage offering in South African market. The coffee beverages were to be sold in both Tsonga Sun Hotels and Southern Sun Hotels in South Africa. More prospective partnerships intended to increase Starbuck’s presence in Africa after South Africa and Egypt include partnership with Cevital, a food company in Algeria, which will see the company increase its product offering in the African market. The company also partnered with a majority of food shops in Norway where the food shops are required to sell Starbucks in their locations without necessarily having Starbuck retail outlets and stores in the Norwegian market. In order to allow for easier penetration of Starbuck in the Indian market, the company has partnered with Tata coffee. In this partnership, Starbuck has to set up its retail outlets and stores in hotels and retail locations operated by Tata Coffee company as well as roast and source coffee beans from Tata coffee stores. This partnership is aimed at enhancing the development Starbuck’s business operations and activities worldwide. Activities Currently, the company is involved in the production of single origin and 30 blends of Arabica coffee. Among the handcrafted products that are produced and marketed by the company include accessories and mugs, brewed and fresh coffee, iced and hot espresso drinks, non-coffee and coffee blended drinks, Tazo teas and Smoothies (Michelli, 2008). The company is also involved in the activities of selling merchandise such as accessories and mugs, tea and coffee brewing equipment, gift items and books, music and packaged goods. The company also produces fresh foods such as sandwiches, baked pastries, oatmeal, salads, fruit cups and yogurt parfaits. Other activities include the production of consumer products which are grouped into three categories. They include RTD or ready to drink, Ice Cream and Tea and Coffee (Michelli, 2008). Budget and profits According to the company’s financial report Starbuck has a total budget of $1.645 billion as at the end of the second quarter of 2011. This reflects a significant drop in the company’s budget as reflected by the company’s financial report at the end of 2010 which stood at 1.792 billion. The company’s profitability track was also on a downward trend from $278.9 million in the fourth quarter of 2010 to $261 million in the first quarter of 2011 (Michelli, 2008). It is evident from the company’s financial reports that economic uncertainties and the continued layoffs and closures of the company’s operations in different parts of the world have been the major cause of the significant drop in the company’s profitability trend as reflected in the company’s income statement. The total budget has also dropped showing that the company’s expansion trend is also on the decline. Management and responsibilities Significant changes have occurred in the company’s management. Smith was the company’s CEO and President up to 2005 from 2001.Smith was succeeded by Donald from 2005. However, the performance of Donald was put into question after the company experienced a significant drop in sales. Howard Schultz, the chairman of the company, resumed his responsibilities as the CEO and the president of the company with a vision of restoring Starbuck’s customer experience in order to boost the company’s sales targets. Increased competition from other foods chains such as Dunkin Donuts and McDonalds has been cited as the main challenge Schultz has to contend with. As a result, the company has recently announced the discontinuation of its sandwich products which were offered in the warm breakfast program in Starbuck. This drastic turnaround has been undertaken as a strategic move towards ensuring that the company focuses more on its coffee brand so as to give the consumers the desired value for their money. The main responsibility of the CEO and the president, Schultz, is to spearhead the required changes in the company so as to give Starbuck a new outlook and experience in terms of customer service delivery. Among the new responsibilities of the company’s management include introduction of new products in the market and changing the way in which business has been undertaken in the company in the past several years. For example, the espresso system has been introduced in the company (Simon, 2009). In addition, the management of the company has also been responsible for the introduction of energy drinks in the company’s product line. In order to effectively, interact with the consumers in all regions of operations, the company’s management has also designed and operationalised its service website in order to provide a proper avenue through which feedback and suggestions from consumers and partners can reach the company’s management. Risks and difficulties faced by Starbuck Among the risks faced by Starbuck include imitation and parodies of the company’s logo. The imitation of the company’s logo has been a major risk in the company because such imitations have resulted into numerous losses in the company’s business. The other risks faced by the entrepreneur include the clash between the company’s product and service offerings and the different cultures of the people in different market segments. For example, the company was forced to close down its operations in China in 2007 due to clash between the company’s mode of doing business and the Chinese culture. Additionally, the company was also forced to close down more than 60 out of 80 retail outlets and stores in Australia due to the clash between the company’s products and the Australia culture. Among the challenges faced by the entrepreneur include increased labour disputes, increased controversies from other players in the industry regarding the anti-competitive methods of marketing used by the company which are deemed as retrogressive because they drive out unprofitable and small competitors from the industry. Market share Although, Starbuck is the oldest company in the coffee industry, its market share has dropped significantly due to increased competition from other players in the industry such as McDonalds, Wendy’s, Taco Bell, Pizza Hut, Dunkin’s Donuts and others. Currently, the company commands 1.7% of the market as compared to 7.7% of the share of the market commanded by MacDonald’s chain of restaurants (Simon, 2009). In this regard, Starbuck is ranked the sixth restaurant among the top ten restaurants in the coffee industry. Strength and weaknesses Among the company’s strengths include the presence of differentiated products and wide product offerings which makes the company more responsive to the wide customers needs in the market. The other strength is that the company is the oldest in the industry and has a high presence of popularity in major markets worldwide. However, among the company’s weaknesses include aggressive strategy of expansion which has seen the company run into losses in the past resulting into closures of numerous retail outlets and stores in different parts of the world. The other weakness is that the company lacks an effective research and development strategy which has seen the company’s operations clash with the cultures of the people in China and Australia (Simon, 2009). This has not only resulted into losses but also the image of the company has been damaged in such market segments. Vision and future expectations Starbuck’s vision is to be the market leader in serving the “best coffee possible”. The goal is to ensure that the coffee served in all its restaurants and other outlets is of high standard. The coffee must therefore be grown through better and responsible practices of growing (Simon, 2009). The company’s future expectations include enhancing the company’s expansion into different market segments through well established strategies directly associated with such markets segments. This involves understanding the market segments through research before venturing into such markets. Works Cited Allison, M. No more layoffs at Starbuck, Schultz says. The Seattle Times Blog, 2011. Behar, H. & Janet, G. It's Not About The Coffee: Leadership Principles from a Life at Starbucks, 2007. 208 pages. Michelli, J. The Starbucks experience: 5 principles for turning ordinary into extraordinary, 208 pages, 2006. Miller, C. Starbuck will close 300 more stores. New York Times. http://www.nytimes.com/2009/01/29/business/29sbux.html. Retrieved 6 June 2011. Schultz, H. & Dori, J. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. New York: Hyperion, 1997. Simon, B. Everything but the Coffee: Learning about America from Starbucks. 2009, 320 pages. Starbucks Coffee Company. 2010. Retrieved from http://www.loxcel.com/sbux. Retrieved 2010-12-15. Read More