Case Study

3684 words - 15 pages

CONFIRMING PAGES

CASE 1-1 Starbucks—Going Global Fast
The Starbucks coffee shop on Sixth Avenue and Pine Street in
downtown Seattle sits serene and orderly, as unremarkable as
any other in the chain bought years ago by entrepreneur Howard
Schultz. A few years ago however, the quiet storefront made front
pages around the world. During the World Trade Organization
talks in November 1999, protesters flooded Seattle’s streets, and
among their targets was Starbucks, a symbol, to them, of free-market capitalism run amok, another multinational out to blanket the
earth. Amid the crowds of protesters and riot police were blackmasked anarchists who trashed the store, leaving its windows
...view middle of the document...

8 billion in 2009. Profits bounded
ahead an average of 30 percent per year through 2007 peaking at
$673, then dropping to $582 billion and $494 billion in 2008 and
2009, respectively. The firm closed 475 stores in the U.S. in 2009 to
reduce costs. But more recently, sales revenues rebounded to $11.2
billion in 2011, and profits reached a record $1.2 billion.
Still, the Starbucks name and image connect with millions of
consumers around the globe. Up until recently, it was one of the
fastest-growing brands in annual BusinessWeek surveys of the top
100 global brands. On Wall Street, Starbucks was one of the last
great growth stories. Its stock, including four splits, soared more
than 2,200 percent over a decade, surpassing Walmart, General
Electric, PepsiCo, Coca-Cola, Microsoft, and IBM in total returns.
In 2006 the stock price peaked at over $40, after which it fell to just
$4, and then again rebounded to more than $50 per share.
Schultz’s team is hard-pressed to grind out new profits in a
home market that is quickly becoming saturated. The firm’s
12,000 locations in the United States are mostly in big cities,
affluent suburbs, and shopping malls. In coffee-crazed Seattle,
there is a Starbucks outlet for every 9,400 people, and the company considers that the upper limit of coffee-shop saturation. In
Manhattan’s 24 square miles, Starbucks has 124 cafés, with more
on the way. That’s one for every 12,000 people—meaning that
there could be room for even more stores. Given such concentration, it is likely to take annual same-store sales increases of
10 percent or more if the company is going to match its historic

cat29974_case1_01-016.indd 2

overall sales growth. That, as they might say at Starbucks, is a tall
order to fill.
Indeed, the crowding of so many stores so close together has
become a national joke, eliciting quips such as this headline in The
Onion, a satirical publication: “A New Starbucks Opens in Restroom
of Existing Starbucks.” And even the company admits that while
its practice of blanketing an area with stores helps achieve market
dominance, it can cut sales at existing outlets. “We probably selfcannibalize our stores at a rate of 30 percent a year,” Schultz says.
Adds Lehman Brothers Inc. analyst Mitchell Speiser: “Starbucks is
at a defining point in its growth. It’s reaching a level that makes it
harder and harder to grow, just due to the law of large numbers.”
To duplicate the staggering returns of its first decades, Starbucks
has no choice but to export its concept aggressively. Indeed, some
analysts gave Starbucks only two years at most before it saturates
the U.S. market. The chain now operates more than 7,000 international outlets, from Beijing to Bristol. That leaves plenty of room
to grow. Most of its planned new stores will be built overseas, representing a 35 percent increase in its foreign base. Most recently,
the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and
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