Marketing Plan for Starbucks - Coursework Example

Marketing Plan for Starbucks Introduction From a humble beginning 40 years ago from the Seattle’s historic Pike Place Market where Starbucks opened its first store, the company has grown by leaps and bounds to become one of the premier roaster and retailer of specialty coffee in the world. The unwavering commitment to excellence has made Starbucks one of the highly trusted brands in the industry. At present the company has close to 17, 000 stores in 50 countries around the world. Starbucks mission is “to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.” The company is obsessed with quality and passionately works to not only benefit the customers but also improve the lives of the people from whom the company sources its coffee beans. Starbucks in UK Starbucks made its foray into the UK market in 1998 when it acquired the Seattle Coffee Company and got the ownership of its 65 outlets in the country. At present, Starbucks is an immensely popular brand in the UK and reportedly serves close to 2 million customers every week. Starbucks offers packaged coffee, instant coffee and ready-to-drink beverages in UK. The overall UK in-home coffee market in volume sales in 2010 was 55.3 million kg while the value sales in the same year was £83.1 billion. Starbucks tally of outlets in the UK was 703 as of November 2010. Of these only nine stores are drive-through stores. The world’s largest coffee-shop operator plans to augment such outlets, where customer can sip the sumptuous speciality coffee from the cosy cocoons of their cars, by another 200 stores over the next five years. If things go as per plan, Euro Garages Ltd will get the licence to operate close to 100 of the new drive-through stores, primarily in central and northern England. There was a time when a Starbucks outlet was seen opening up in just about every high street in London. The latest recession, which brought numerous businesses across the world down to their knees, also affected Starbucks UK adversely. Financial Performance of Starbucks UK Profit margins came under real pressure as the prices of raw material, especially milk, soared. The collapse of sterling compounded the woes as it pushed up the cost of imported coffee. Starbucks had no option but to close the underperforming outlets during these years. The crumpling of Borders UK operations in 2009 led to the closure of 36 coffee bars in its book shops. No wonder Starbucks boss Howard Schultz described conditions in UK at that time as "very, very poor". Table 1 below supports Schultz’s opinion. Table 1: Financial Performance of Starbucks in UK* Particulars Year ended Sept 2008 (£ ‘000) Year ended Sept 2009 (£ ‘000) Percentage change 2008-09 Turnover 373,539 388,267 +3.9 Gross Profit 77,816 69,738 -10.4 Operating Loss 20,369 41,355 +103 Loss before Tax 26,344 52,221 +98.2 Net Loss 46, 972 52,106 +10.9 *Source: Mintel Reports The only bright spot in the financial performance of 2009 vis-à-vis 2008 has been the 3.9 percent spike in turnover. Besides that the results are dismal to say the least. Gross profit for Starbucks in UK dropped 10.4 percent to £ 6.9 billion in 2009. The net loss for the coffee chain in UK surged from £ 4.6 billion in 2008 to £ 5.2 billion in 2009, an increase of 10.9 percent. Competition in the UK Market Starbucks set foot on the UK soil when the country’s coffee culture was at its infancy. However, over the years, the market has grown tremendously. Today, UK is the worlds third-largest market for branded espresso bars after the United States and Canada. If the market size has increased, so has the competition. In fact the company has cited ‘heightened competition’ as one of the reasons for its recent losses in the UK market. While Starbucks remains the most visited coffee chain in the UK, Costa Coffee, with more than 1000 branches, has toppled it to become the market leader with regard to number of outlets in the country. Caffé Nero and Coffee Republic Ritazza are the other popular names in the UK speciality coffee market. However neither of these two players is really big to challenge Starbucks. Numerous other small players also operate in the country with number of outlets ranging from 3 to 75. The market share on the basis of number of outlets of coffee chains in the UK market is depicted in Fig 1* below. * Adapted from Mintel Reports SWOT Analysis (UK Market) Strengths Strong brand with a reputation for providing quality products and services. Deal with UK based Tesco in July 2010 has given Starbucks access to grocery shelves not only in the latter’s home country but worldwide. New recruitment strategy employed in UK with an ultimate aim to improve customer services. Success of new loyalty card programme in UK. Strong product portfolio further strengthened by Starbucks Via Ready brew Coffee launched in UK in March 2009. The product reportedly sold over nine million servings in UK in the first 6 months of launch. Tremendous digital impact with a whopping 20 million fans of the world’s most famous social networking site Facebook. Starbucks UK gave away 30, 000 cups of coffee to consumers who ‘checked-in’ to the store through UK Facebook Deals launched in January 2011. Weaknesses Implementation of cost cutting measures may hinder the growth plans. Dependence on outside coffee producers and exporters for the supply of coffee. End of 10-year-old licensing relationship with Kraft Foods, exposing the weaknesses in the company’s distribution network especially in the consumer packaged goods segment. Purchase of significant amounts of dairy products, particularly fluid milk, for the US, Canada and the UK markets, from only six dairy suppliers. The 65+ age group in Britain constitute a fifth of the population. The consumption of instant coffee for an average UK adult fall from 13.4 cups per week to 11.9 cups per week on attaining the age of 65. Opportunities Focus on youth-targeted products and grab a larger pie of the in-home coffee market. Promote the energy giving benefits of the products so as to appeal to people with extremely busy lifestyle. Giving pod machines, free of cost to consumers in order to stimulate the market. Smaller variants of pod machines can be targeted at the working population. Threats Volume sales growth in UK has been stagnant for the last 5 year. The growth in value sales has been primarily on account of ‘premiumisation’ and rising commodity prices. Kenco Millicano Wholebean Instant is a real competitor to Via Ready brew Coffee. Currency fluctuation of the pound vis-à-vis US dollar leads to significant volatility in the price of coffee. Unfavourable economic conditions, like recession, adversely affect consumer spending. Adverse public or medical opinions about the health effects of consuming coffee have the potency to harm the business. PEST Analysis (UK) Political Economic Constitutional Monarchy Part of European Union Currency is Pound Sterling an not Euro Strong lobbying for action against unhealthy foods. Stringent regulations imposed by Office of Communications on advertisements of food and drink products. GDP estimated to be $2.2 trillion in 2010. Annual growth rate in GDP 1.25 percent. Population of approximately 6 billion. 20 percent of the population is aged 65 and above. Social Technological Very high literacy rate. Growing obesity concerns. Preference shifting from carbonated drinks to healthier drinks Bio degradable packaging materials. Less bulky coffee vending machines. Heightened spending on research and development. Global Business Strategy for Starbucks Starbucks should aim to pursue sustainable and profitable growth through a more diversified, multi-channel and multi-brand business model. The U.S. market, from where the company generates close to three quarters of its revenue is showing signs of maturity and saturation, therefore the company needs to look at newer markets as well. Starbucks needs to adopt the following strategy: Build an International model that will scale and grow profitably: Starbucks has successfully established itself as one of the most recognized and respected brands in the world. The company enjoys a strong goodwill in the markets that it operates in. At present, Starbucks has international specialty operations in nearly 40 countries. Of these, the company’s biggest markets are Canada, Japan and the UK. Now the company should actively seek to expand its network of retail and licensed stores in other countries. Accelerate growth in India and China: The economies of Brazil, Russia, India and China, popularly known as the BRIC countries, have registered stupendous growth rates in the last few years and have been on the radar of most companies seeking to go international. China and India, in particular, with their booing middle class and rising personal disposable incomes, have become the cynosure of all eyes. Optimize and grow the highly profitable U.S. retail business: As a location strategy, Starbucks stores are, more often than not, located in high-traffic, high-visibility locations. The company is however flexible when it comes to the size and format of its stores. This suppleness enables the retail coffee chain to locate itself at numerous places like downtown and suburban retail centres, office buildings and university campuses. The company has also opened some of its stores in select rural and off-highway locations. The company should now, in addition to expanding its retail network, look at optimizing this business by catering to a larger customer base through the same store. One way of doing so is to provide access of the store to non-pedestrian customers through the up-gradation of existing stores or development of new drive-thru retail stores. The aforesaid discussion points to the fact that Starbucks can drive growth through a combination of increasing sales in existing stores, selectively opening new stores in existing markets as well as opening new stores in new markets. Marketing Mix of Starbucks Product: Starbucks has, in its product repertoire, a vast array of regular and decaffeinated coffee beverages, Italian-style espresso beverages, cold blended beverages, iced shaken refreshment beverages, premium teas, roasted whole bean coffees and a variety of Starbucks VIA Ready Brew soluble coffees. In addition to this, Starbucks also offers a variety of fresh food items with high nutritional value to satiate the appetite of the health conscious. Food items include pastries, sandwiches, oatmeal and salads. Juices, sodas, and bottled water are also available at Starbucks retail stores. The company is continuing to expand the selling of its warm food items which are now available at 90 percent of the stores in the U.S. and Canada. Place: Starbucks has more than 15,000 company-operated retail stores in 50 countries around the world. Starbucks also sells its coffee and tea products and licenses its trademarks through other channels such as licensed retail stores. In all, the company has created 50,000 points of distribution by making its ready-to-drink products available at supermarkets, groceries, club stores and other retailers. The company calls the distribution channels other than the company-operated retail stores as ‘specialty operations.’ The company’s CPG are sold through licensing arrangements and joint ventures with large consumer products business partners. Since this arrangement utilizes the business partner’s existing infrastructures, it entails a modest cost structure and high operating margins for Starbucks. Price: Starbuck coffee has always been positioned as a premium product offering. Essentially, Starbucks offers a whole experience to the customer rather than just a beverage. Superb ambience and high quality product which is rich in taste enables Starbucks command a high price. Promotion: The Company’s ‘My Starbucks Rewards loyalty program’ has been immensely successful in building and retaining a loyal set of customers. Gold Level members of this program get a drink, free of cost, after they make 15 purchases at participating Starbucks stores. Members of this program also receive free select syrups, milk options and refills on tea or brewed coffee during a store visit. Starbucks Cards are accepted at all company-operated stores, most licensed stores in North America and at select international locations. The program has been instrumental in increasing the frequency of store visits by cardholders. The way people have taken to social media has revolutionized the manner in which companies advertise and promote their products. Starbucks has also capitalized on this opportunity. With the help of social and digital media, it is increasingly engaging with customers. New Product for the UK Market It is proposed that Starbucks launches its own brand of bottled water named ‘Bliss’ in the UK market. Rationale for Introducing Bottled Water Till about four decades back, not many took the bottled water industry seriously. In fact the companies trying to enter the industry were scoffed at. But all that is history now. The bottled water, as a product, remains the same. However, what has changed is the way consumers think about bottled water. The changed mindset has catapulted the industry into one worth billions of pounds. Last year, the UK Governments Office of National Statistics incorporated bottled water in the standard shopping basket for the first time. The UK bottled water market has spiked from 580 million litres in 1993 to 2.1 billion litres in 2001. The consumption of bottled water in UK exceeds that of fruit juices, wine or spirits. The per capita consumption of bottled water was more than 33 litres in 2010, up from the per capita consumption of 26.9 litres in 2001. The per capita consumption is likely to touch 40 litres by 2020. This quantum of per capita consumption is miniscule when compared with the per capita consumption of United States which is estimated to be 100 litres in 2010. The yawning gap points to the considerable room for growth in the UK market (British Bottled Water 2011). State of Competition and Future Projections At present the UK Bottled Water industry is dominated by four major players; Highland Spring; Nestle Waters UK, Princes Limited and Eden Springs UK Ltd. Each of these players has numerous brands in their product line so as to satisfy different target markets. It is estimated that the bottled water industry would continue to grow by 2.8 percent per annum from 2011 through 2016 and would clock revenue of £595.5 million in 2016-17 (IBIS World 2011). To a large extent, climatic conditions impact the sales of bottled water. However, majority of the sales growth in the UK market is likely to come from the ever increasing belief of consumers that drinking eight glasses of water a day is the best bet for optimum health. As it is, there is heightened awareness about the ill effects that carbonated drinks may have on health. This has led people to refrain from consuming such drinks and opt for healthier options like juices or even plain water. This represents a marketing opportunity for Bliss. Smart Objective for Bliss The initial aim for Bliss would be to spread awareness and become the top-of-the-mind brand in 2012. During this time Bliss will aim to capture 2 percent of the market share. The upcoming London Olympic Games in 2012 are the ideal platform for Starbucks to create an advertising blitzkrieg and spread awareness of the brand. The coffee chain should become the official drink partner for the championship. The Marketing Plan Bliss should initially be rolled out in the 500 ml PET package only. Later on, the product can be introduced at 1 litre and 1.5 litre packages. To induce trials, free samples of the bottled water may be given at each of the Starbucks stores. After one month of launch, these should be sold at the rate of £ 1.5 per 500 ml bottle. The pricing would corroborate with the premium pricing of other Starbucks products. Only Bliss should be available at the Starbucks stores in the country. The bottles should be placed on each table. This will prompt the visitors to consume water immediate on arrival as well as after finishing the meal. In the official press releases the brand would be projected as a healthful drink produced through ethical means with due consideration of the environment. Such a projection would ward off the community backlash against the environmental impact of bottled water. All visitors to Starbucks stores would be the target market for Bliss. The brand would be positioned as the “ideal beverage for the trend-setters”. These trendsetters would be the people who would discard drinks that have the potency to harm the body and ingest the purest bottled water in UK. References Baker, R. 2011, "Starbucks explores UK launch for My Rewards", Marketing Week, , no. 01419285, pp. 4-4. Brabbs, C. 2001, Perrier Vittel UK recruits KP Nuts marketing chief, Haymarket Business Publications Ltd, United Kingdom, London. Bottled Water Helped Drive Sales in the UK Soft Drinks Market 2006, , United States, New York. British Bottled Water (2011), Water’s Vital Statistics: Industry Data, 27 Nov, 2011. By E.S. Browning 1992, Nestle, Indosuez Launch Hostile Bid for Perrier --- Agnelli Battle May Presage A Period of Takeovers In Fragmented Europe, United States, New York, N.Y. Bureau, O. 2011, "Business Line: Cafe Coffee Day site boils over with fans", Businessline, , pp. n/a. 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