Starbucks Case Analysis

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It’s 2002 and Christine Day, Starbucks’ senior vice president of administration in North America is facing a dilemma. In two days she’s scheduled to meet with Howard Shultz, Starbucks’ Chairman, and Orin Smith, Starbucks’ CEO, to offer her recommendation on whether the company should move forward with a plan to invest $40 million annually, adding 20 hours per week of labor to each of the company’s 4,500 stores. The aim of the investment is to improve speed of service and customer satisfaction. As the case reveals, Starbucks 2002 is not the Starbucks’ of the early 1990’s, when the coffee giant got its start at a few outlets in the Pacific Northwest selling high quality bagged whole bean coffee to largely affluent gourmands. The casual, unhurried, transactions that were common during Starbucks’ early years allowed for friendly interpersonal exchanges between sales staff and clientele. Such exchanges were highly valued by Starbucks’ clientele and the welcoming, familiar ambiance differentiated Starbucks from its competitors. In 1992, Starbucks’ partner ownership agreed to sell the company to Howard Shultz, who had previously headed up marketing at Starbucks. Shultz began expanding the company immediately. He raised $25 million from Starbucks’ IPO, added outlets across the country and began diversifying Starbucks’ product lines. While Starbucks continued to offer whole bean coffee, their primary product offering transitioned to customized single cup coffees. This proved a successful move and by 2002 coffee beverages account for 77% of all Starbucks’ sales. Within 10 years Shultz expanded Starbucks to more than 5000 outlets worldwide. During that expansion period Starbucks enjoyed a compound annual sales growth rate of 40% and a compound net earnings growth rate of 50%. Shultz exercised a very well defined brand strategy, one that had been informed by his personal

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